Global volatility has led to mixed growth signals, says global investment manager Ninety One.
In the US, the Federal Reserve has begun to cut interest rates and signalled limited tolerance for further deterioration, while financial markets have remained volatile as investors weigh the prospect of a more pronounced slowdown. At the same time, the ongoing uncertainty surrounding the US election has added to the volatility, the group said.
Iain Cunningham, head of multi asset growth at Ninety One, said: “In our view, the risk of a more pronounced slowdown is elevated, but the prospect of monetary policy easing, ongoing fiscal support and a still relatively robust growth picture leads us to view a soft landing as the central scenario for the US at present.”
Europe is also experiencing tight policy, with lags shorter than in the US due to less pandemic stimulus, higher levels of floating rate debt and less fiscal support.
Ninety One said growth indicators are weak and close to recession, while shorter-term measures of inflation are now in line with the European Central Bank’s target.
Cunningham said: “We expect eurozone growth to remain weak for the time being and for inflation to continue to moderate as energy price pressures abate. We believe that the ECB’s easing cycle will ultimately prove to be more pronounced than the Fed’s given structural headwinds in the eurozone against tailwinds in the US.”
In China, the picture looks similarly precarious, with recovering “hanging in the balance”, according to Ninety One. Easing measures are becoming more forceful, driving a material rally in Chinese and Hong Kong equity markets, however recovery is not without its challenges.
Cunningham said: “We expect policymakers to do what it takes to ensure that a sustained recovery takes hold. Growth metrics remain mixed, and the recovery will remain bumpy. Inflation remains weak but base effects should begin to provide more support on a forward-looking basis. We continue to believe that the Chinese economy will experience a more benign outcome than the bearish consensus suggests.”
Looking ahead, Cunningham said its stance leaves it “somewhat more constructive” on the prospect for risk assets, particularly in Asia and the US. In fixed income, it retains a healthy exposure to defensive government bonds, given the elevated risk of recession.
In currency, Cunningham said his team maintains a preference for the US dollar versus European and Asian currencies, as a diversifying portfolio position, given positive carry dynamics and the firm’s expectation that easing in these regions will be more pronounced than in the US.
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