Dollar strength over the last three months reflects a US economy returning to health and recognition by other economies that more forceful monetary policy is needed. Furthermore, there are renewed doubts over the euro.
A recovery in growth against a backdrop of dollar strength has a very different feel to the shorter, more inflationary bursts of growth in the 2009 and 2010/11 recoveries. Dollar strength is a headwind for commodities but muted inflation pressures should keep monetary policy loose to the benefit of stocks.
LEAD INDICATORS IN FOCUS
- Our global growth scorecard for February registered its highest reading in two years on improvements in business confidence and lead indicators.
- The commodity price weakness has kept the global inflation scorecard in negative territory, therefore, placing the investment clock in the disinflationary ‘Recovery’ phase.
- This disinflation ‘Recovery’ phase has historically been the best time to hold stocks; stronger global growth is boosting corporate earnings, while monetary policy remains loose.
- We are hopeful that the current upswing will last throughout 2013, although the pace of expansion is likely to moderate at some point.
CURRENT ASSET ALLOCATION POSITIONING
- Our multi asset funds have a large overweight position in stocks and a small overweight position in commodities.
- We raised Japanese equity exposure to overweight in January on the back of improving earnings momentum and a firm commitment to stimulus from the newly elected government.
Trevor Greetham joined Fidelity in January 2006. He is Director of Asset Allocation and in addition to managing funds, Trevor is a member of Fidelity’s Asset Allocation Group. Prior to joining Fidelity, he spent ten years at Merrill Lynch, where he was Director of Asset Allocation. Trevor began his career with UK life insurer Provident Mutual. He holds an MA in Mathematics from Cambridge University and is a qualified actuary.
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