Perspectives - Higher rewards, higher risks

July 2020

A large segment of risky assets have already recouped nearly all of the ground lost during the March correction. Are markets ahead of themselves or will the global recovery be faster than generally expected? This is not an easy call, but we think the odds of a faster recovery are better than generally believed.

Asset Class Highlights
  • Equity:A liquidity-driven bull market in risk assets, including equities, is possible but could rest on shaky ground. Higher rewards come with higher risks.
  • Fixed Income:The U.S. Federal Reserve Fed is expected to work with an implicit target range for U.S.10-year Treasury yields of around +0.5% to +1.15%. The U.S. government and U.S. non-financial corporations have heavy debt loads that need to be refinanced at a low cost with the issuance of longer duration debt securities. As a result, yield curve targeting is not an option.
  • Currencies: Relatively faster pandemic recovery in Europe and Asia versus the U.S. should be an important source of downward pressure on the overvalued U.S. dollar.
  • China: The world is experiencing a China-led recovery, with Chinese real growth averaging +10.2% over the forecast horizon.

Read the Perspectives report