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Overall the tactical asset allocation remains consistent with a constructive global economic outlook, including an improved assessment of the emerging economies. Beyond that, LGT trimmed our exposure to stock markets in Europe and the US, mostly in favor of Asian equities and Emerging Markets bonds.
On a global level, we see no reason to change our main scenario of modest and mostly inflation-free economic growth. However, recent macro data confirm a notable and growing divergence between a robust economy in the US and a sputtering one Europe. In Japan the overall macro picture remains encouraging and Japan’s prospects to break out of its decades-old deflationary spiral remain intact in our view. Emerging Markets appear set to rebound.
In Europe we encounter a sputtering economy: Italy is officially back in recession, France is troubled, and even Germany is showing signs of fatigue. As result, central bank policies are now pointing in different directions, with the Federal Reserve in the US slowly but steadily moving closer towards raising interest rates, while the European Central Bank is preparing to roll out its own version of "quantitative easing".
The Emerging Markets should benefit from the recovery of consumption-driven US economy, as well as the growth-oriented domestic policies and reforms pursued in countries such as India or Mexico. At the same time, China's domestic structural slowdown appears to be bottoming, implying a more limited downside going forward.
More insight into our currently marekt view can be found in the complete Asset Allocation Strategy.