BNP Paribas AM: Mid-year reversals – thoughts on asset allocation

Following a volatile last few months, we foresee a pause and potentially a reversal in some of the prominent trends. In particular, we expect US Treasury (UST) yields and the US dollar to stabilise in the near term, as we believe UST yields have already priced in good news in terms of growth, inflation and monetary policy tightening by the Federal Reserve. By contrast, growth in the eurozone economy has slowed, but the ECB has signalled its intention to end its asset purchase programme by the end of 2018.

The stronger US dollar has been the main reason for emerging market (EM) assets underperforming since April, so a weaker US dollar should thus help stabilise EM currencies and EM local debt. Another factor that should support EM currencies is the restoration of EM rate differentials as EM central banks raise interest rates or sound more hawkish.

Read our expert’s analysis of the asset implications of the mid-year global investment environment.