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With US yields near 4%, we took profits on our US duration underweight, lifting government bond and US bond allocations to neutral in our multi-asset portfolios. Rising concerns about the growth outlook should, in our view, cap the upside for bond yields from here.  

We see meaningful risk still of a sharper equity drawdown led by earnings adjustments. With European equities facing the largest downside to earnings, this is our main short position.

We favour Chinese (and Japanese) equities. Chinese stocks are supported by an easier monetary policy; a relaxation of regulation; decent earnings expectations; attractive valuations; positive signs on the outlook for an easing of China’s zero Covid policy.

Our level of conviction on the positive outlook for European investment grade credit is growing. The fundamentals are strong; Investment Grade (IG) looks attractively valued versus equities; it is possible that governments and the European Central Bank will provide support (e.g. in sectors such as utilities); corporate indebtedness is falling and cash balances are high, so any pressure to deleverage is conspicuously absent.

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