Quarterly Asset Allocation - Q2 2021

2Q Investment Outlook: Overweight Equities and Slightly Underweight Bonds

 

Q: Principal Asset Management (Asia) Investment Management Team

A: Crystal Chan, Senior Investment Specialist of Principal Asset Management (Asia)

 

Q:Entering the second quarter, how have the fundamental factors changed?

A: More doses of Covid-19 vaccines have been administered. Among the countries/regions in the world, Israel has the highest rate of vaccination, followed by the United Kingdom and the United States. Based on the current US vaccination rate, it is possible that three quarters of the population will have completed two doses of vaccine by the middle of the third quarter. As a result, the number of daily new cases around the world has also dropped significantly. Taking the United States as an example, the number of cases dropped by more than 80% at the peak.

In terms of the economy, the global manufacturing PMI has returned to a three-year high; the global financial conditions index has remained in the loosest territory on record. With the support of large-scale accommodative fiscal and monetary policies, global economic output may return to pre-pandemic levels this quarter.

Q:What are the risks that the investment market is facing?

A:In the short term, rising inflation and an excessive surge in long-term yields are still the biggest risks that the investment market is facing. As food and energy prices rise further, inflation is expected to continue to heat up during the year, triggering market concerns about an early shift in monetary policy. However, the Fed has stated that it will follow the new average inflation target framework. Therefore, even if core inflation rises, it is more likely to be seen as evidence of a gradual economic recovery. The policy rates may remain unchanged from now until 2023.

Surging inflation expectations and real interest rates have driven the 10-year bond yield to reach a record high in more than a year. U.S. Treasury bond yields are generally regarded as risk-free interest rates. Rising U.S. bond yields, especially 10-year Treasury bond yields, may increase financing costs for governments, corporates and individuals, and put pressure on the financial market. In addition, the earnings yield of the equity market may also be affected, reducing the attractiveness of high valuation stocks.

Q:How should assets be allocated in 2Q?

A: We believe that the basic factors driving the market upward have not changed. In the second quarter, we continue to be optimistic on equities. Among them, Asia is bullish, while the United States, Japan and Hong Kong are slightly bullish, China is neutral, and Europe is slightly bearish.

In terms of bonds, we are slightly bearish overall, and recommend cutting down the duration. Based on the expectation that the yield curve will continue to steepen; we are bearish on sovereign bonds, while investment-grade bonds are neutral.

.

Crystal Chan

Crystal Chan
Senior Investment Specialist
Principal Asset Management (Asia)

 
 
DISCLOSURES
Investment involves risks. Past performance of any particular fund or product mentioned in this document is not indicative of future performance of the relevant fund or product, and the value of each fund or product mentioned in this document may go down as well as up. You should not invest solely in reliance on this document. There is no assurance on investment returns and you may not get back the amount originally invested.
You should consider your own risk tolerance level and financial circumstances before making any investment choices. If you are in doubt as to whether a certain fund or product mentioned in this document is suitable for you (including whether it is consistent with your investment objectives), you should seek legal, financial, tax, accounting and other professional advice to ensure that any decision made is suitable with regards to that your circumstances and financial position, and choose the fund(s)/product(s) suitable for you accordingly.
The information contained in this document has been derived from sources believed to be accurate and reliable as of the date of publishing of this document, and may no longer be true, accurate or complete when viewed by you. The content is for informational purpose only and does not constitute an offer, a solicitation of an offer or invitation, advertisement, inducement, representation of any kind or form whatsoever or any advice or recommendation to enter into any transactions in respect of the funds/products referred to in this document. This document is not intended to be relied upon as a forecast, research, or investment advice regarding a particular investment or the markets in general, nor is it intended to predict or guarantee the performance of any investment. The information does not take account of any investor’s investment objectives, particular needs or financial situation. You should not consider the information as a comprehensive statement to be relied upon. All expressions of opinion and predictions in this document are subject to change without notice.
Subject to any contrary provisions of applicable law, neither the companies, nor any of their affiliates, nor any of the employees or directors of the companies and their affiliates, warrants or guarantees the accuracy of the information contained in this document, nor accepts any responsibility arising out of or in connection with any errors or omissions of the contents set out in this document.
This document is the property of Principal Asset Management Company (Asia) Limited that no part of this document may be modified, reproduced, transmitted, stored or distributed to any other person or incorporation in any format for any purposes without Principal Asset Management Company (Asia) Limited’s prior written consent.
Source of this document is from Principal Asset Management Company (Asia) Limited. 
This document has not been reviewed by the Securities and Futures Commission.
This document is issued by Principal Asset Management Company (Asia) Limited.

Start investing in your financial future

We need your basic information to get started!

home-get-started