united kingdomen
A perfect storm: binary outcomes

A perfect storm: binary outcomes

23-07-2018 | Insight

It is amazing how so much can change when not much has really changed. While fundamentals are still pretty much the same, increasing market risks have sent global equity markets into risk-off mode.

  • Fabiana Fedeli
    Fabiana
    Fedeli
    Global Head of Fundamental Equities

The main risk is the threat of escalation of the US-China trade tensions. In addition, a further rise in US inflationary pressure may cause the Fed to accelerate its tightening path. The ECB is also moving towards normalization of global liquidity and will end Quantitative Easing at the end of this year.

Credit spreads are likely to widen, driven by a combination of tighter monetary policy, record-high valuations and high leverage. In developed equity markets, unless we get positive news on the trade disputes, volatility is likely to stay elevated as the market is discounting the increasing risks and declining Central Bank support.

As for emerging markets, steady growth in emerging and developed markets remains a positive factor, while inflation in the emerging world is at historical lows. However, sentiment towards emerging markets has been dented as well, by weak currency performance in several emerging countries, rising risk of a trade war and political events in emerging countries. Global emerging markets equity funds are starting to see outflows, emerging bond spreads are widening and emerging markets have lagged developed markets year-to-date. Valuation remains a clear positive, with a discount of around 25% on trailing and forward earnings against developed markets.

What we need most of all is a resolution of the trade tensions for global markets to get off their risk-off stance. For the US-China relations, one can never tell what the future holds, but eventually markets will have to get used to the two most powerful countries in the world being at odds from time to time.

Stay informed on our latest insights with monthly mail updates
Stay informed on our latest insights with monthly mail updates
Subscribe

Read the Fundamental Equities Quarterly Outlook

Disclaimer:

This report is not available for users from countries where the offering of foreign financial services is not permitted, such as US Persons.

Your details are not shared with third parties. This information is exclusively intended for professional investors. All requests are checked.

Subjects related to this article are:
Logo

Disclaimer

Please read this important information before proceeding further. It contains legal and regulatory notices relevant to the information contained on this website.

The information contained in the Website is NOT FOR RETAIL CLIENTS - The information contained in the Website is solely intended for professional investors, defined as investors which (1) qualify as professional clients within the meaning of the Markets in Financial Instruments Directive (MiFID), (2) have requested to be treated as professional clients within the meaning of the MiFID or (3) are authorized to receive such information under any other applicable laws. The value of the investments may fluctuate. Past performance is no guarantee of future results. Investors may not get back the amount originally invested. Neither Robeco Institutional Asset Management B.V. nor any of its affiliates guarantees the performance or the future returns of any investments. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency.

In the UK, Robeco Institutional Asset Management B.V. (“ROBECO”) only markets its funds to institutional clients and professional investors. Private investors seeking information about ROBECO should visit our corporate website www.robeco.com or contact their financial adviser. ROBECO will not be liable for any damages or losses suffered by private investors accessing these areas.

In the UK, ROBECO Funds has marketing approval for the funds listed on this website, all of which are UCITS funds. ROBECO is authorized by the AFM and subject to limited regulation by the Financial Conduct Authority. Details about the extent of our regulation by the Financial Conduct Authority are available from us on request.

Many of the protections provided by the United Kingdom regulatory framework may not apply to investments in ROBECO Funds, including access to the Financial Services Compensation Scheme and the Financial Ombudsman Service. No representation, warranty or undertaking is given as to the accuracy or completeness of the information on this website.

If you are not an institutional client or professional investor you should therefore not proceed. By proceeding please note that we will be treating you as a professional client for regulatory purposes and you agree to be bound by our terms and conditions.

If you do not accept these terms and conditions, as well as the terms of use of the website, please do not continue to use or access any pages on this website.

I Disagree