-The economic and market environment is more uncertain, but investors have become less complacent about the risks ahead
-We expect growth to remain strong, but is likely to become more disparate across economies
-The inflation outlook is unclear. While we do not expect a surge in inflation, markets may still be underestimating the risk of upside surprises
What do the global financial crisis of 2008 and the recent market correction have in common? In our view, both events were driven by excessive leverage. A bubble bursting usually involves losses based on investment. However, financial bubbles created by leverage are particularly dangerous to the economic environment as they comprise unexpected losses. They are difficult to spot, especially when they appear in parallel with other bubbles (such as the technology and e-commerce bubbles in the US).
Much like assets financed by credit, shorting volatility could result in unexpected losses. In our view, the February market correction was just a warning on the short volatility bubble. In this paper, we reveal where we believe markets will go from here.
By Anisse Marzouk, Client Portfolio Manager and Alexandre Marquis, Head of Client Portfolio Managers, Equities
Inflation has been a central component in our investment narrative over the past two years. In this paper, we reveal how deflation is well behind us and discuss how inflation figures have entered a stabilisation period. This new phase has much in common with the 2006-2007 period of the last cycle: higher growth and falling unemployment. This cycle has proved somewhat more benign than past cycles and the outlook for wage growth should be no different.
By Florian Ielpo, Head of Macroeconomic Research, Cross Asset Solutions
1. Equity markets experienced some turbulence at the start of the February, breaking a period of calm for investors.
2. We have been concerned with the excessively low levels of risk priced by the market and these were at odds with the potential headwinds we had identified.
3. Given our more defensive and risk managed approach to equity investment management, we were able to provide our investors with a level of outperformance.
Perspectives paper written by Maria Musiela, Investment specialist, Equities, and Alexandre Marquis, Head of Investment Specialists, Equities
Following last week’s stock market plunge, we felt it was an opportune moment to give some insight into how our Multi Asset Navigator strategy was positioned ahead of time and where we see the opportunities in the near future.
Special report written by Unigestion’s Cross Asset Solutions team