Robert J. Kea, CFA

Tilting toward risk assets

Robert J. Kea, CFA , Co-Head of Global Asset Allocation, 11/19/2015


Volatility has dominated the investment climate for more than a year. The resulting market environment has been scarred by the extreme pullback in equity markets during the third quarter amid global concerns about decelerating economic activity in China. It's an important consideration for strategies involving risk assets.

Looking beyond cyclical variations We believe that it’s important to continue thinking clearly about actual conditions. Despite ominous headlines in the East, the models and factors that we monitor to assess the health of the global economy continue to paint a relatively stable picture, albeit with a slight tick down in recent months within global manufacturing. These slight cyclical variations are not unusual, and have manifested themselves many times over the past five years.

In each case when manufacturing weakened, staying the course has been the correct call, and we continue to support that strategy in the current environment. We would point to the continued strength of services and the developed-market consumer as particular areas of strength to offset the somewhat bad news in the industrials sector.

Sources of global stability We see growth in the U.S. economy continuing at its moderate pace. Also, we do not think that the Chinese economy is in the process of imploding; rather, we think it possible for China to see annualized economic growth in the 5% to 7% range. Accommodative monetary policies in the eurozone and Japan could continue to be supportive in those regions as well.

On the whole, the third quarter’s pullback in equity prices was a useful correction that could present attractive buying opportunities in the future. While potential headwinds and volatility remain, our outlook continues to call for a slight tactical tilt toward equities and other risk assets.

Financial professionals: For more views from the Global Asset Allocation Team about maneuvering in markets, see the latest Capital Markets Outlook.

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