På väg mot reflation…

THE INVESTMENT CLOCK
The Investment Clock approach generates growth and inflation readings based on past trends and the current momentum of lead indicators. These indicators are updated on a monthly basis to build an expectation of how the global economy may perform over the coming three to six months. The growth reading sets the relative weighting of cyclical and defensive assets (North-South axis). The inflation reading sets the weighting of financial assets versus real assets (East-West axis).

MACROECONOMIC HEADLINES

• The Investment Clock is currently between Stagflation and Reflation, which is not a good environment for risky assets such as equities and commodities. The global growth environment has deteriorated to an extent where reflationary monetary policies are becoming more likely.  
• Economic data is now suggesting that US growth will be lower than anticipated. Investor sentiment has weakened considerably as a result of this and exasperation over the fiscal policy response in western nations.
• If current trends continue, we could quickly move into the Reflation phase of the investment clock. Fed Chairman, Ben Bernanke, bought himself some time with his speech at the recent Jackson Hole conference, but if economic data remains weak, there will be greater pressure for him to deliver some form of monetary stimulus at the two-day Federal Reserve meeting on September 20-21.

ASSET ALLOCATION HEADLINES

• In early August, we reduced equities and property to small underweight positions and increased bonds to a large overweight position. Macroeconomic data has been weak, policymaker responses weaker still and sentiment is depressed. On the other hand, we could see a sharp rally if we get a significant policy shift in the coming weeks. 
• Within equities, we favour the more defensive markets of US, German and UK equities due to their better fundamentals and within sectors we prefer healthcare and consumer stocks.