BNP Paribas Asset Management - MAQS Asset Allocation Quarterly

Summary

• Transitioning to a reflation regime? – Several developments suggest that a move to a reflationary environment is a material risk, if not immediately. We explore supply shocks given ongoing de-globalisation; fiscal stimulus; and a more traditional route: an economic recovery, with a focus on Chinese policy easing. 
  
• Risks in fixed income more skewed than in equities – A reflationary shock would represent a significant shift, and one that fixed income markets in particular are not priced for. We find that bond markets appear rich compared to equities across regions. 
  
• Need to be nimble – We have long argued for the need for investors to be nimble in the current backdrop. Our base case remains ‘fragile goldilocks’, but the likelihood of our risk scenarios has increased.