Monthly House Views - Remaining calm amidst political uncertainty - June 2024

Remaining calm amidst political uncertainty

This month completed with our views on non-listed assets.

The results of the European elections ultimately proved more significant for France than for Europe, as it prompted the French President to call a snap parliamentary election for 30 June and 7 July. The decision took political analysts and politicians alike by surprise, spooking French financial markets. These reactions show that investors think they have much to worry about: short-term uncertainty about the outcome of the poll, fears France may plunge into a prolonged period of instability, and doubts about whether the next government will be able to address the public finances issue.

Stepping back from the political uncertainty, the global economic landscape still looks positive, with modest economic growth and inflation drifting gradually downward, giving the key central banks reasons to nudge interest rates down.

We are leaving our portfolio positions unchanged

Despite rising uncertainty and volatile markets, we have opted to leave our asset allocations unchanged for several reasons. First, we prefer not to overreact to political news, whose market impacts tends to be short-lived. Second, looking at the fundamentals we think this is the right time to remain exposed to risky assets. Finally, we see our existing diversified stance as the best defence against possible turbulence. It has already proved able to weather recent turbulences.

We therefore maintain our Overweight to equity markets in developed economies. United States continue to benefit from a robust economy, while European stocks are still attractively priced. We remain constructive on sovereign bond markets and on investment grade corporate debt, which continue to offer attractive carry and make a good diversification play if the going gets rough in the current geopolitical instability. We also remain Overweight the US dollar against its main European pairs as we expect US rates to remain higher than their European peers.

Read full article