Fynsa
After a first half of the year marked by various headwinds for assets, we believe that the risk-reward ratio—which is fundamental for risky assets—will likely improve in the second half of the year.
| Driver | Impact | Key Assumptions | Recent Developments |
| Global Growth | Positive | The global economy is slowing sharply this quarter, held back by an expected slowdown in China. However, outside of China, growth dynamics appear more encouraging. | The global composite PMI stands at 51.5, suggesting that global GDP growth is proceeding at a rate of 2.5%. Market expectations regarding growth momentum have already declined substantially, limiting the potential for further disappointments from here on out. |
| Monetary Policy | Neutral | It is unlikely that the Fed will continue to move more quickly and adopt a more restrictive stance, at least given current prices (11 rate hikes for 2022), assuming inflation has likely peaked, based on the year-over-year change. | On the policy front, we have potentially passed the Fed’s most hawkish stance for now, with bond yields leveling off—no further flattening of the yield curve—and the USD is stalling. |
| Rates | Neutral | Our expected scenario calls for an end to the downward trend in interest rates. Rising inflationary pressures will push central banks in the developed world toward monetary policy normalization. | Although upside risks remain, we are generally inclined to believe that base rates are already reaching a “significant peak,” and several divergences we observed in previous months—between interest rates and inflation levels, as well as real interest rates that were very low compared with other tightening cycles—have been narrowing. |
| Credit | Neutral | Interest rates now appear “more attractive,” especially in the investment-grade (IG) segment, with spreads at historical averages. After a decline of more than 12% from its Q4 2021 highs, U.S. investment-grade debt may well represent a “tactical opportunity” within a diversified portfolio and a barbell strategy. |
Outflows have already stabilized in the U.S. corporate bond market |
| Dollar | Neutral | The USD tends to peak when the Fed begins to tighten policy and before the ECB starts raising rates. | Interest rate differentials are no longer as favorable for the dollar |
| Features | Positive | Our best estimate remains that the U.S. economy will manage to avoid a recession—at least not an imminent one—so the expected earnings growth would not be compromised (+10%). | EPS estimates have been back in positive territory for the past 5 weeks |
| Valuations | Neutral | Equity returns relative to credit and bond returns provide a valuation cushion. The United Kingdom, the eurozone, and parts of the emerging markets are cheap, while the U.S. is relatively less attractive; however, P/E ratios are 30% lower than they were a year ago. | MSCI World at 16.5x forward P/E; MSCI EM at 11.8x forward P/E; MSCI EU at 12.5x forward P/E |
| Sentiment and Positioning | Neutral | Sentiment is clearly cautious, which is usually a good contrarian indicator. There has been some reduction in positions. | |
| Flows | Neutral | A trend that still favors risk-taking. | Flows into mutual funds and related investment products are showing signs of stabilization |
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