Markets will be moving past the tariff ‘shock’ and stagflation fears will be diminished by late summer, according to head of multi-asset investments at Rathbones, David Coombs.
While some are forecasting a prolonged period of fear and downward action in markets, prompted by a US recession and return of high inflation, Coombs sees a more positive scenario as likely.
He is also sceptical over the asset allocation shift some investors have made away from US assets into Europe and elsewhere.
In his latest investment commentary blog, Coombs laid out his rationale and picked out some of the holdings which he believes will fare well in the expected scenario.
“I’m going to make a big call here,” he said. “I think come late summer we will be through the tariff shock and fears of US recession and inflation will be diminishing. Company managers will be able to guide with more confidence and some normality will be restored to bond markets.
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“That doesn’t mean the Trump circus packs up and is put in storage. The endless social media messages and commentary will continue, but they will pack less weight. He now has a big credibility gap.”
“We cannot predict how markets will move in the meantime, so we’re focused on positioning for the relief rally that we believe is coming,” Coombs continued. “We think this will be led by government bond yields falling back, which will help interest-rate-sensitive equities.
He added that defensive businesses have held up ‘pretty well’ during the recent volatility, so cyclical businesses, like banks, industrials, construction and automation and logistics machinery suppliers may lead the market in the second half of the year.
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Rathbones multi-asset portfolios already have significant holdings of companies such as Morgan Stanley and US Bancorp, UK construction wholesaler CRH, US building equipment hire business Ashtead, German warehouse kit maker Kion and industrial gas supplier Linde, he noted.
“In summary, we believe the view gaining traction that this is end of the US as the dominant global economic power is premature and we won’t be following the ‘hot’ investment flows into Europe,” Coombs said.
“The regulatory environment hasn’t changed in the last six months, nor the lack of innovation nor poor productivity levels. Yes, valuations might be lower in Europe, but they should be. We buy European companies that are global leaders, but we shouldn’t just buy companies based on where they are listed.”
