Monday Macro: Asset allocations updated, US investors are still bullish but getting more cautious, watch Mrs Watanabe, and what’s hot in emerging markets

Some updates to my asset allocation ideas, including an overweight on government bonds and infrastructure, plus why it pays to watch what Japanese investors are buying

1. Updating my asset allocation ideas

2. overweight government bonds and infrastructure

3. extreme US equity outperformance might continue

4. US private investors are still bullish but bearish concerns are growing

5. US corporates reporting a more unsettled but still positive picture

6. Japanese capital flows are crucial to fund American spending

7. If the BoJ drops its yield curve control expect massive volatility

8. UK service inflation has weakened considerably

9. Peak interest rates either here or imminent

10. HSBC analysts say emerging market investors have grown more bullish on China and Mexico

Global equity markets have had a strong few weeks with the MSCI World, US (S&P 500), Japan (Nikkei) and Europe (Stoxx 600) all rising around 9% in US dollar terms since 27 October. Several indices, such as the MSCI World and S&P 500 equal-weighted have also recovered from negative ytd positions. This recent rally has been broadly based and very different to most of 2023.

I’ll kick off this week's Macro overview with the table below – this outlines my own take on various asset classes, informed by my own (slightly cautious) risk tolerance as well as the constant stream of research and strategy notes that come across my desk.

It’s purely meant as a guide and should be treated with all the usual caveats, but there have been some changes. I’ve marked in blue where I have made some recent changes.

My core view is that we have reached peak interest rates, although I concede that the UK could see some small increases from hereon in. Overall I think central bankers are waking up to the risks of their rate hiking strategy and are now keen to keep rates where they are for the next few months. That makes an investment in some bonds, especially those issued by governments more interesting.

In my Investment Ideas, coming on Wednesday, I will explain more on this thinking via a report on my recent conversation with bond fund manager Ian Williams of Charteris. For now, note the changes are highlighted below. I have upgraded to overweight bonds, particularly some government bonds, and most alternatives – I’m still cautious on commodities generally.