Fynsa
After a first half of the year with several risks to assets, we believe that the risk-reward ratio, which is critical for risky assets, is likely to improve in the second half of the year.
| Driver | Impact | Main assumptions | Recent developments |
| Global growth | Positive | The global economy is slowing sharply this quarter, held back by an expected downturn in China. Outside of China, however, growth dynamics look more encouraging. | The global composite PMI is at 51.5, which points to global GDP growth running at a rate of 2.5%. The market's outlook for growth momentum has already been substantially reduced, limiting the possibility of further disappointments from here. |
| Monetary policy | Neutral | It is unlikely that the Fed will continue to move faster and more restrictive, at least relative to current prices (11 hikes by 2022), subject to a likely peak in inflation, on a year-over-year basis. | On the policy side, we are potentially past the Fed's maximum hard line for now, with a leveling off in bond yields, no further flattening of the yield curve, and the USD is stalling. |
| Fees | Neutral | Our expected scenario contemplates the end of a downward trend in interest rates. Higher inflationary pressures will pressure central banks in the developed world to normalize monetary policy. | While upside risks persist, in principle we are inclined that prime rates are already reaching a "relevant maximum level" and several divergences that we observed in previous months, between the level of rates and inflation levels, as well as real rates that were very low compared to other adjustment cycles, have been closing. |
| Credit | Neutral | Rate levels already look "more attractive", especially in IG, with spreads at average levels for its history. After a drop of more than 12% from 4Q21 highs, IG US debt may well represent a "tactical opportunity", within a diversified portfolio and a Barbell strategy. |
Outflows have now stabilized in US corporate debt. |
| Dollar | Neutral | The USD tends to peak when the Fed begins to tighten and before the ECB begins to hike. | Rate differentials are no longer so favorable for the dollar |
| Utilities | Positive | Our best approximation remains that the U.S. economy will manage to avoid a recession, at least not an imminent one, so expected earnings growth would not be compromised (+10%). | EPS revisions are back in positive territory, up from 5 weeks ago |
| Valuations | Neutral | Equity yields versus credit and bond yields offer a valuation cushion. UK, eurozone and parts of emerging markets are cheap, while the US is relatively less attractive, yet P/E multiples are 30% lower than a year ago. | MSCI World at 16.5x Fwd P/E; MSCI EM 11.8x Fwd P/E; MSCI EU 12.5X fwd |
| Sentiment and positioning | Neutral | Sentiment is clearly cautious, which is usually a good contrarian indicator. There has been some reduction in positioning. | |
| Flows | Neutral | A dynamic still in favor of risk. | Flows into mutual funds and related investment products show signs of stabilization |
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