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May Investment Strategy: Five global risks worth worrying about

Key points:

  • New risks have emerged. These include Italian politics, geopolitics in the Middle East and issues in emerging markets
  • Our view is the positive cycle still has room to breathe, and we are holding our pro-growth stance. But timing is of the essence and over the next 24 months, asset allocations should start taking account of the inherent risks.
  • This makes for a more tactical market environment. We have a short bias in duration and have revised our year-end target for the 10-year US treasury yield to 3.3%. We also maintain our overweight in equities, with a preference for the US, the euro area and emerging markets.

From Goldilocks to Goldilost: new bear threats

Global markets began 2018 with a bang. Growth was rising fast across the world with trade contributing briskly, while the policy-mix was most favourable and political risks look subdued. But in February, volatility spiked and financial markets corrected on sudden fears that perhaps markets had been over-optimistic.

Since then, those worries have remained and other risks have raised their heads on both the economic and political fronts. Data started turning softer than expected while political risk kept ratcheting higher. In this Monthly Strategy we look at what we believe are the five main risks currently facing markets and assess the extent to which they could derail the ongoing recovery.

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