While many of its peer groups are anxious about the pound’s recent bout of weakness, the wealth manager has argued that sterling is undervalued on a medium to long-term horizon, trading at similar extreme lows seen in 1985 and in 2008 in the aftermath of the global financial crisis.
“Many investors have a negative view on sterling based on Brexit risks to the UK economy and the reliance on foreign capital inflows,” the firm said in its mid-year investment outlook.
“But, post-referendum, economic activity in the UK has proved more resilient than anticipated.”
European equities also remained on top of the group’s buylist, given its cheapness relative to US stocks and the “easing” political risks.
The group predicts the European market will also continue to be the beneficiary of the reflationary trade, sparked in the US in the final quarter of 2016, making the case for risk assets such as equities, including technology and financials, and high yield bonds.
However, the group admitted it was being selective in choosing its value stocks and maintaining only a slight overweight to equities in general, predicting the imminent end to the business cycle.
Healthcare, which has experienced major gains since the 2016 US presidential race, also continues to look promising for the wealth manager.
The reflation trade, sterling and healthcare, all themes that the firm identified in the beginning of the year, “have continued to perform well,” said the group’s managing director and head of global markets Mohammad Syed, adding that “we continue to see potential for growth in these areas”.
“In the meantime we’ve added emerging market bonds to our portfolios and funds, to benefit from strengthening economies in the developing world,” he added.
