Portfolio

Markets will remain stuck in a trading range, driven by two policy feedback loops: the Fed's and China's.

Informe especial

Australia's equities and currency are driven largely by industrial commodities prices, Canada's by the oil price. Given our more positive view on oil, we prefer Canadian assets, though both markets face risk from stretched property prices and household debt.

The factors that drove the recent rally - Fed dovishness, China reflation, and a pickup in economic data - are largely over.

The model has downgraded France to underweight due to deteriorating liquidity and technical conditions. U.S. weight is boosted by 4 points at the expenses of European countries.

No significant change in allocation was made. Direction wise, weights in Spain and Switzerland were increased slightly at the expense of Netherland and Sweden.

Risk assets are stuck in a range driven by the Fed feedback loop. But the current rally may continue for another quarter or two.

Informe especial

The benefit of including alternative assets in a traditional portfolio is almost at an all-time high, due mostly to increased return enhancement. This is despite the growing popularity of the alternatives industry and the larger number of entrants, which have reduced alpha opportunities.

No significant change was made except that the weight of France was increased to 7% from 1.7%, largely driven by improvement in relative liquidity conditions. It's mainly financed by a reduction in the U.S. weight which remains the largest overweight in the model.

The recent rebound is not a harbinger of a prolonged recovery in risk assets. The many potential negatives will keep volatility high and trigger further occasional selloffs.

It is highly unusual for equities to enter a bear market without the economy going into recession. Since we see the risk of recession as low, we recommend a neutral allocation between bonds and equities.