Investment Strategy: Asset allocation maintained; regional adjustment in stock portfolio

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There is no getting around the fact that the latest eruption in the US/China trade dispute throws a wrench into what had been a moderately positive scenario developing for the second half of the year.

Optimistic factors lining up for financial markets included the more accommodative stance of central banks, rising equity markets, low inflation and China’s response to policymaker stimulus. But what had been receding fears related to the trade situation are again on the front burner. Negotiations appear to be at a stalemate after disagreements between the US and China erupted at the last minute. US President Donald Trump has now implemented trade tariffs on USD 200 billion of Chinese imports and China retaliated with its own list of new import tariffs on US goods.

Of course, it had not been completely rosy. Growth in the eurozone remains sluggish, especially manufacturing. In Germany, the important German auto sector declined by 12.5% year over year in the first four months of the year, although average monthly output saw a lesser decline of just 2.5%.

Despite the increasing trade tensions, it appears that potential positive factors still slightly outweigh the negatives. We therefore continue to expect that global growth will increase slightly in the second half of the year. And, as previously maintained, the risk of recession remains very low.

In this environment, the ABN AMRO Investment Committee retained the existing asset allocation, which takes a neutral stance toward stocks, while bonds remain out of favour. Within alternatives, gold is preferred. Within the equity portfolio, a shift in the regional allocation has been made. We have revised downward our stance toward emerging markets (from overweight to neutral), while the allocation to the US has been increased (further overweight). With continued low unemployment levels, we expect the US consumer to remain an important support for the economy. The US economy is further less dependent on international trade, particularly compared with emerging markets or Europe.

Richard de Groot, Chair, ABN AMRO Global Investment Committee

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