Albemarle Street Partners is looking to reduce the exposure of the entire portfolio to the riskiest asset classes as it tries to “navigate the maze of the multi-asset correction”.
Fahad Hassan, chief investment officer at Albemarle, said recent comments from Federal Reserve Chairman Jerome Powell suggest the stock market rally on improving inflation and economic data has now run its course.
In Powell’s speech, the Fed Chairman said the central bank had an “unconditional” and unwavering commitment to bringing inflation down, while despite recent improvements in inflation data he said they “were still a long way” from a change in trend.
Hassan said while there was nothing surprising in Powell’s speech, who also said the Fed would be patient in the unfolding of tougher policy when the economy slows, he added that it “provided ammunition for the bears to re-exert their influence.”
“With a slew of economic data due out in the coming days, investors will be trying to interpret the likelihood of another 75 basis point rate hike in September,” he said. “August inflation added significance as it could impact the pace of Fed policy and asset prices for the rest of the year.”
Meanwhile, closer to home, Hassan added that the news looked “much worse”, with inflation picking up steam in recent weeks due to soaring natural gas prices and the lifting of fuel caps. energy price.
“British and European energy infrastructure is ill-equipped to deal with the consequences of the war in Ukraine,” he said. “Electricity prices are tied to the price of natural gas, which in the winter months leads to higher energy costs for households and businesses.”
Hassan argued that the near doubling of energy bills will push millions into poverty and drive up wage demands across the economy. The Bank of England expects UK inflation to peak at 13% in the fourth quarter, but private sector forecasts have been revised upwards.
“The immediate impact of policy dithering was felt in the FX and fixed income markets, where UK gilts have performed well below global bonds and sterling is near post-pandemic lows. against the US dollar,” he added. “The lack of a clear plan this close to winter adds fuel to an already precarious context.”
In this context, Hassan said, “the mind naturally focuses on the areas that have seen the greatest historical setbacks.” These, he added, included UK large caps, UK mid caps, UK property and Asian stocks.
“Note that many of these declines were seen during the 2008 global financial crisis,” he said. “The downside characteristics of fixed income securities are particularly different from those of equities, and we can take advantage of this characteristic as we aim to improve long-term portfolio results.
“We remain on a defensive basis and will continue to reduce exposures across the portfolio to the riskiest asset classes.”