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LGT Beacon: Tactical asset allocation for Q3/2019

June 13, 2019

Early last month, just when a Sino-American trade agreement seemed within reach, Washington abruptly escalated its confrontation with China, prompting the US and other central banks to signal an increased willingness to ease policy if needed. We opt to maintain a small equity overweight, while trimming emerging market positions in favor of US assets.

After a good start into the second quarter, with US stock indices hitting new marginal highs on April 29 and May 1, investor sentiment soured on May 6, as US President Donald Trump shocked market participants with an overnight tweet that effectively ended the US trade talks with China. Stocks dropped sharply in response, but a US-led recovery seems to have started in the meantime.

In that context, it is important to note that US equities thus far have clearly outperformed since the so-called trade war began to heat up in early 2018, particularly vis-à-vis the emerging markets. The interim phases of détente were thus far not long enough to bring about a reversal of that pattern.

 

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Note: The next edition of the LGT Beacon is scheduled for July 2019.