We do not expect a recession in the U.S. and in Europe for the next 6 to 9 months. U.S. tax cuts and increased government spending will keep the U.S. economy relatively strong.
Chinese growth is softening but the PBoC is carefully standing ready to ease conditions to prevent any escalating contraction.
The trade tensions are steadily evolving into a trade war as political and personal egos are causing global growth collateral damages.
The growing divergence (growth and monetary policies) between the U.S. and the rest of the world might cause some structural malaises, which will ripple through the markets.
The USD has now appreciated again and will continue to benefit from tailwind factors, but most of the appreciation seems already discounted.
Emerging Markets have to digest the increasing cost of a stronger USD and higher USD interest rates and trade tariffs, before resuming at a later stage their growth.
Although many forces will prove challenging for Emerging Market assets, they have already discounted a large part of these expectations and offer longer-term investors interesting entry levels.
In fixed income, the recent credit spread widening in specific markets offers some interesting entry points, such as in USD denominated Asian corporate bonds with good quality.
We largely avoid duration exposure as inflationary tendencies are creeping up across the globe.
Private debt markets, such as direct lending or secured lending remains in the sweet spot, but diversification and a thorough manager selection is a must.
Full Quarterly Investment Letter Q3 2018
