While UK equities and energy have been upgraded from “not preferred” to “neutral”, industrial equities have been downgraded one notch to “not preferred”.
Barings has kept its assessment of European equities unchanged at “strongly preferred”, as is property.
According to Marino Valensise, head of Barings Multi Asset, there are three main reasons behind his firm’s current investment strategy.
These are a need for improved communication from certain central banks; signs of better growth in the US; as well as monetary policy favourable to investment and The People’s Bank of China’s readiness to embark on cuts.
With regards to central banks, Valensise noted the latest change in Fed language confirms the uncertain direction of travel.
He said any references to global, international and overseas developments (reported as a concern in late September) have “miraculously disappeared” from the Fed’s October statement.
In Barings’ view there is little to worry about with the US economy.
The firm anticipates a better tone for growth and an earnings per share recovery in the first half of 2016 – enough to avoid any dip below the “stall speed” of 2%.
“Will we experience a recession? At some stage in the future, surely … but not now,” said Valensise.
Away from the US, monetary policy will keep on helping investors.
The People’s Bank of China is ready, noted Barings, to embark on a substantial series of cuts to official rates and to the Reserve Requirement Ratio.
Such policies will help the economy, corporate profitability and market prices for a while.
Moreover,Valensise explained that the nature of economic growth has changed too, and we need to look at it differently.
Domestic activity, the service sector and consumption are increasingly important. Valensise said: “These are all growing and will probably lead the economy in the coming quarters.”