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Markets warrant caution and capital protection, warns Fidelity Multi-Asset CIO

16 June 2019

An environment of trade wars and a more hawkish Federal Reserve has prompted Fidelity International Multi-Asset funds to take a cautious approach to investments, with a renewed focus on protecting capital.

Following a strong first four months to the year, which saw a steady upward trajectory in risk assets and the longest consecutive period of falling volatility since 2014, trade tensions have hit market sentiment.

James Bateman, CIO, Multi Asset, Fidelity, said: “Given this backdrop, our team sees a market ripe for shorter-term positioning, and this is reflected in our views. We have updated our view on equities to underweight, and while this overall perspective is nuanced – underweight US and overweight emerging market – we still see many markets overpricing global growth prospects, and if trade wars or fundamental data deteriorate, we could see a sell-off.

“Conversely, fixed income markets are pricing in bearishness, and given low carry and poor valuation support, we maintain our underweight duration view, especially in non-US sovereigns.”

Fidelity has also taken a positive stance on cash, stating that having ‘dry powder’ to use when markets produce dislocations will be important in the coming months, especially in light of the US announcing tariffs on Mexico in addition to its ongoing dispute with China.

Bateman continued: “We are closely watching the impact of both trade disputes on prices paid by consumers, as this will clearly impact how long President Trump is willing to continue down the path of brinkmanship, especially as we build towards an election.”

Commenting on the political uncertainty in the UK and an already weak Eurozone, Bateman added: “In this uncertain environment, the full breadth of Fidelity Multi Asset’s investment team is working hard to uncover opportunities.”

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