Asset allocation flash: Buying the dip

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BNP Paribas Asset Management’s MAQS investment group has decided to go long developed market equities, after a long period of being strategically neutral equities.

The main reasons for the decision were:

  • A cautiously constructive view on US-China trade talks: our base case is that the renewed tensions could be prolonged – potentially lasting months – but eventually, discussions will lead to a deal.
  • The economic and monetary policy backdrop – moderate growth, low inflation and a preceived ‘put’ in the terms of monetary policy –  still endorses a ‘goldilocks’ environment, notably in the US; this should be supportive of risky assets.
  • MAQS’ proprietary Technical Dynamic Analysis (TDA) points to a medium-term bounce in equities.
  • We prefer developed (DM) versus emerging market (EM) equities amid lingering uncertainty over China’s economic recovery despite months of monetary and fiscal stimulus.

We recognise that the main risk is further escalation of Sino-US trade tensions and the eventual absence of a deal, causing material damage to global markets and economic sentiment. This could take markets into a more bearish global slowdown environment.

We implemented the trade in the form of a 50% EMU and 50% US equities basket with a fairly low conviction level, leaving room to increase the position in in the case of pullbacks.

Exhibit 1: Buying the dip – long US, EMU equities

Source: Bloomberg and BNPP AM, as of 17/05/2019

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This is an extract from the latest asset allocation flash by the MAQS team at BNP Paribas Asset Management. For the full version, click here >

For more articles by Maximilian Moldaschl, click here >

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Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients.

The decision to go long developed market equities was taken on 10 May. Views expressed are those of the investment committee of MAQS, as of May 2019. Individual portfolio management teams outside of MAQS may hold different views and may make different investment decisions for different clients.

Maximilian Moldaschl

Senior Global Multi-Asset Strategist

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