Next year, Matteo Germano, global head of multi-asset investments, expects a progressive rebalancing between monetary and fiscal policies with core inflation finally reaccelerating in some regions, such as the US and the eurozone.
‘Within this framework, we expect a smooth transition from an asset reflation regime to a late financial cycle one: still in favour or risky assets, but less benign than the current one for several asset classes.
‘Valuations for most of asset classes look stretched, fixed income in particular, while equities have already discounted most of expected profits growth,’ he noted.
As a result, Germano believes the expected upside in equities will likely be more limited than 2017, in line with the mature phase of the bull market.
Hence relative value rather than directional strategies will be crucial to add value to multi-asset investments in the year to come.