Schroeder says investors need to be patient with immediate risks in a market rife with uncertainties. We can focus on the transmission trend of imported inflation to the downstream and consumer side in the second half of the year.
At present, the environment at home and abroad is complex, and the uncertainty of the epidemic situation may put further pressure on the economy. Schroeder says investors need to be patient with immediate risks in a market rife with uncertainties. Judging from the performance of large categories of global assets, the logic of the market revolves around "overall inflation", "the risk of stagflation in Europe and the United States", "China's economic downturn" and "the return of a strong dollar".
The systemic decline has come to an end
First of all, let's take a look at the stock market . When the Federal Reserve entered the interest rate hike cycle, the financial market also strengthened the expectation of the risk of stagflation, and the overall performance of the equity market was low. As of the end of April, the MSCI global stock market had made a return of-11.3%, and China's CSI 300 index also fluctuated greatly among internal and external troubles. In addition, the global REITS market, which represents risky assets, also has a return of-2.2%.
However, after a recent sharp adjustment, Schroeder Investment said that the overall valuation of the stock market has been significantly revised, taking into account the reduction in potential earnings forecasts, combined with historical data, the valuation may not have reached the bottom, but the valuations of some companies have entered an attractive range. Taken together, the systemic decline of the market may have come to an end, and the power of Alpha has a chance to win in the future.
To be optimistic about bond assets
As for the bond market, inflation is one of the important factors affecting the bond market. In response to the huge pressure of across-the-board inflation, the trend of the Fed's shrinking schedule and raising interest rates has become more and more obvious. Us and European bond yields have accelerated, with overall returns of-4.7 per cent and-5.4 per cent respectively by the end of April this year. The trend of Chinese government bonds is slightly different, and the domestic market is mainly focused on economic downward pressure, policy space and the intensity of interest rate cuts, rather than the risk of inflation, so the overall government bond market still achieved a positive return of 1%.
From the perspective of bond investment, Schroeder said that it is optimistic about bond assets in the future and can focus on the transmission of imported inflation to the downstream and consumer side in the second half of the year.
On the commodity side, commodity prices are still running high. The sharp rise in commodity prices last year was mainly due to the impact of the COVID-19 epidemic on the global supply chain system. Commodity prices continued to be strong this year, mainly due to the impact of the conflict between Russia and Ukraine and the deregulation of epidemic control in parts of Europe and the United States. During the year, the futures price of natural gas in the United States rose by more than 100%, the price of crude oil rose by more than 44%, and the commodity and agricultural price index also showed double-digit growth.
Confidence and expectations for the future
Finally, focusing on China's macro-economy and capital market, and unswervingly adopting the anti-epidemic strategy of "dynamic zero clearance" has become the basic assumption of the overall macroeconomic trend this year. This is also a concentrated reflection of the current uncertain expectations for the future. The relatively loose monetary policy of the central bank and abundant capital market liquidity make "infrastructure and real estate" seem to have become a necessary option for China's follow-up economic recovery this year, but the problem on the demand side of credit is not limited to capital and costs. the central bank also needs to deal with the pressure of the external environment.
Schroeder Investment said that under the influence of the Fed's interest rate hike policy and overall inflation, the liquidity of cross-border capital markets is under pressure. Although currency devaluation is good for exports, it is still necessary to balance the impact of rapid devaluation on capital markets.
Looking ahead, Schroeder said that to boost confidence and expectations, it would require "better-than-expected" policies and direct access to the root causes of the contradiction-residents and businesses. Lack of business confidence will reduce investment and financing, and lack of confidence in residents will affect the recovery of consumption and real estate. Small and medium-sized enterprises are facing a relatively large impact, so the realization of employment goals can be affected.
Overall, in Schroders' view, the market's systemic decline may have come to an end, and the power of Alpha has a chance to prevail in the future. In terms of asset allocation in major categories, we are optimistic about bond assets in the future, and we can focus on the transmission of imported inflation to the downstream and consumer end in the second half of the year.