Harris, the firm’s head of multi-asset, also pointed to tactical opportunities in emerging market equities.
This is a continuation of a view he has held since early this year that we are in an elongated and abnormal business cycle, in which investors must unravel a “confusing mix of the familiar and the unfamiliar”.
“The global economy is desynchronised and countries appear to be caught in mini cycles of growth improvements which fail to sustain due to deep and unexplained structural impediments,” he warned.
“Many developed equity markets have moved to ‘rich’ valuations for the expected level of earnings growth,” he continued, adding that many companies are now at peak margins with weak sales outlooks, which leave them vulnerable from a forward looking earnings and valuation perspective.
Harris clearly believes that a number of emerging market equities and currencies have now suffered a full blown bear market correction.
“Given the extent of the bad news, they have now become extremely sensitive to a marginal positive change,” he said.
“Whilst we are cautious of the longer term dynamics, a tactical opportunity for significant rewards may be about to present. We hope to participate should the necessary catalysts fall into place.”
The dollar has suffered of late, with global growth worries meaning a Fed rate rise may now be delayed further into 2016. Harris warned that the long dollar is one of the most crowded trades in markets with any unwind likely to be “violent and sustained”.
“With nominal rates falling, lots of evident political issues, market shocks and high levels of pessimism, the longer term conditions have now turned decidedly more supportive for most commodities,” he said.
“As and when the dollar starts to weaken, commodities should start to reward.”
