Equities: Positive Returns Ahead Despite Challenges

Highlights:

• Equity markets have rebounded from a historical slump in Q1, with US markets even posting fresh record highs.
• We acknowledge the risen risks of setbacks amid loftier valuations, elevated political risks (US elections, Brexit and US-China frictions) and Covid uncertainties into autumn.
• Overall, however, we see some further moderate upside. Higher valuations are compensated by recovering economic growth and corporate earnings amid strongly expanding monetary and fiscal policies.
• Central banks’ commitments to persistently low yields and continued asset purchases justify structurally higher market multiples. Investors’ positioning is still not stretched.
• We maintain a slight tilt towards cyclicals and EMs, which have been lagging the rally.

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