In the current news whirlwind, a new style seems to have emerged: pinball investing. Markets have been bouncing off tweets in whichever direction makes more sense at the time. The trade deal is on, equity markets go up and risk-on trades outperform; the trade deal is off, equity markets go down and turn more defensive. The probability of such binary outcomes is incorporated in our investment team’s five-factor outlook, which is now neutral for both developed and emerging equity markets.
Yet, while the news outcome might be 50/50, the risk-reward is asymmetric. While further degeneration in either the trade war or – limited to the UK and Europe – Brexit is likely to cause a negative price reaction, the upside that would be triggered by positive news at this point looks far greater.
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