Worried about inflation?
After a decade-long lull, markets have started to price in higher inflation expectations. However, we believe the growth outlook will be a more important driver of equities over the next 12 months as inflation gradually abates. We prefer equities over bonds and cash, but an allocation to gold can help mitigate any inflation surprises along the way.
The growth and earnings outlook remains most constructive in Developed Markets. In the US and Euro area, we prefer both equities and High Yield bonds.
Chinese policy has turned less restrictive in pockets, though monetary policy or regulatory easing is likely needed for the outlook to improve more broadly. We prefer Asia USD, including Asian High Yield, and Emerging Market USD government bonds.
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