Close quarters
The team also marginally reduced its overweight position to emerging market debt to reflect the growing concern of a stronger dollar. Meanwhile, exposure to emerging market beta risk was removed by taking a small underweight to emerging equities.
“We also maintain a small underweight to developed Asian equities to hedge some of the emerging market risk from potential China weakness,” says Hambi.
With heightened expectations for inflation having been positive for global equities, Hambi’s outlook also takes into account the role of Opec. “For the first time in eight years, the oligopoly has agreed to cut production, adding fuel to the global headline inflation numbers,” he says.
“The portfolio is positioned to benefit from this reflationary environment, which should see equity risk outperform fixed income assets.
“As such, our net overweight position in equities is being funded from underweight positions in UK fixed income, most notably corporate bonds. Over the coming quarters, the two major risks to equity are a sharp rise in real yields and a contraction of globalisation, which should affect emerging markets the most.”
