The centrist candidate's victory is seen as a positive for European stability, something which supports the global reflation trend that has been building up since last summer. Economic data in Europe, Asia and the US has been improving, underpinning traditional risk assets, such as stocks, and high yield and emerging market bonds.
Geopolitical forces suppressing global government bond yields have somewhat
dissipated after the French first-round vote. We see Fed rate rise expectations
returning as a bond market driver, justifying a cautious stance on sovereign debt.
We see a reduced near-term risk of trade wars, as President Donald Trump's White
House appears to have softened its stance toward both the North American Free
Trade Agreement (NAFTA) and China. This could benefit emerging markets (EMs).
While a moderate candidate is the most likely victor in our assessment, the situation remains fluid with little risk priced in. In such an environment, we believe it is important to protect investors in our multi asset portfolios from market shocks. We have tactically reduced exposure to financial markets and increased exposure to the Japanese yen for its defensive qualities in times of stress.
Ariel Bezalel, Head of Strategy, Fixed Income, explains his caution on the Trump administration's ability to deliver fiscal reforms, and why he has increased the duration in his funds for the first time since cutting it last summer.