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LGT Beacon: Tactical asset allocation for Q4/2021

September 13, 2021

The macro outlook remains positive, but peak growth is behind us and the economic momentum will continue to slow to a more normal pace. At the same time, investors are pricing risky assets for a carefree future, and might thus prove susceptible to disappointments. In this situation, we combine a small overweight in risk assets with elevated cash reverses. 

Last Friday, our investment team concluded the asset allocation review for the fourth quarter of 2021. Bellow we summarize our view and positioning decisions for the coming three to six months. These tactical decisions are expressed as a deviation, i.e. an under- or overweight, from our long-term strategic views.

Peak growth is behind us

The economic recovery is intact but peak growth in the US is behind us and the global outlook faces three broader challeng-es:

  • Potential impact of the latest COVID-19 variant outbreak
  • China's credit tightening and regulatory makeover
  • Unclogging the supply disruptions caused by the pandemic

At the same time, the strong rebound of consumer prices that erupted when the West began to exit the lockdowns has started to ease – defusing fears of lasting excessive inflation, with the occasional macro data disappointment, such as the August US unemployment report, reinforcing this détente. Somewhat ironically, these developments are market-friendly, as they give the Federal Reserve more room to justify and if need be to prolong its (very) patient stance when it comes to the eventual reduction of its bond purchases (currently $120 billion per month).

Against this background, interest rates have barely detached from their extremely low levels and financial conditions consequently remain very accommodative. At least for now, investors seem to view the recent inflationary outburst mainly as the welcome consequence of reopening the economies – i.e. the ability of businesses that were devastated by last year's lockdowns and social distancing rules to, quickly, restore prices to their pre-pandemic trajectories. Naturally, such pent-up price surges cannot continue infinitely beyond their point of release, i.e. the end of the lockdowns - and hence inflation pressures should begin to ease off again with time.

To read the full report, click on the link: LGT Beacon

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Note: The next edition of the LGT Beacon is scheduled for October 2021.