Asset manager Russell Investments projects a lackluster scenario for the next six months of the year, with a likely recession in the UK on the back of Brexit.
Commenting on “the new mediocre” outlook for H2 2016, Andrew Pease, Russell’s global head of Investment Strategy, said bond markets are currently “in a lengthy process of bottoming”.
“The bond market is probably over, but it is not a bear market starting straightaway,” he said.
This development probably has more to do with investor expectation than ECB policies, Pease told InvestmentEurope.
“I think the Brexit vote may have been the point at which many investors gave up on the idea that interest rates could return to more normal levels. They have reduced their expectations for the amount of Fed tightening and have a long-term view of zero ECB interest rates,” he said.
Pease does not favour investments in this asset class, on the back of investors’ pessimism in bond markets.
“There could be small bounce in bond yields if US employment data stays robust and markets start thinking that a December Fed hike is becoming more likely. But more possibly, bond markets are in a messy period of bottoming that could persist for a while,” Pease said.
“The next trend in yields is likely to be higher, but this will require stronger economic growth and inflation pressures. This could take a while, and will be seen in the US before Europe,” he added.
For H2 2016, Russell has a neutral view on developed equities, as it underweights US stocks and overweighs Europe.
Although US equities have performed “relatively well”, the market is expensive, Pease said, while Europe can offer “a reasonable value” in stock markets.
Equities, however, are at the low end of historic ranges at Russell’s Multi-Asset Growth Strategy fund, while the it seeks to diversify strategies, the asset manager said.
Russell claimed that its Multi-Asset Growth Strategy defended well after Brexit and finished June in positive territory.