Despite a short pause in the US/China trade war, the tensions are expected to continue to shake up markets, according to the mid-year market outlook by RARE Infrastructure.
The manager said that the US getting tough on China became one of the few issues with bi-partisan support as voters in the “rust-belt” states were impacted by the shifting of jobs to cheaper labour forces offshore.
“In our view however, there is little chance that the global economy will be pushed into a recession. This is due to the likelihood of Chinese stimulus throughout the second part of the year, along with an expectation that major central banks will take a dovish turn,” the investment team said.
Also, a slowing global economy had led the Federal Reserve to switch from a tightening monetary policy last year to a loosening bias this year, according to RARE, given that the European Central Bank followed suit.
These two factors of looser monetary policy and Chinese stimulus starting to find traction should help avoid the recession, according to the manager.
“After all, the US consumer continues to be in fine form. With unemployment at multi-decade lows and wage growth starting to come through, consumer sentiment is still very strong. In this environment, we believe that investors should remain fully invested in equities.
“This being said, given the uncertain global backdrop and the later stage in the cycle, we believe investors should have at least some of their portfolio allocated to more defensive equities, such as infrastructure and utility stocks.”
In addition, RARE said that even though infrastructure had rallied so far, there would still be opportunities, including undervalued quality infrastructure companies in the UK utilities.
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