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Olivier d'Assier, Simcorp
Olivier d'Assier, Simcorp

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Stress test portfolios to survive current climate

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More than four-fifths (82 per cent) of European fund managers believe the global economy will weaken over the coming year, following the imposition of trade tariffs by the US government.

The Bank of America (BofA) European Fund Manager survey reports that the highest proportion of respondents in its 25-year research history predict poor global growth, while almost half (49 per cent) expect a global recession in the coming months.

Investors are most pessimistic for US growth, which a net 89 per cent expect to slow in the near term, which asset managers have described as a “deliberate act of self-harm” by the US administration.

Mark Dowding, BlueBay CIO, RBC BlueBay Asset Management says: “We would note that with [former US president Joe] Biden having gifted Donald Trump an economy growing at 2.5 to 3 per cent, it would go down as a monumental and historical act of self-harm were the US Administration to engineer a recession, entirely of its own making.”

Meanwhile Anthony Willis, Senior Economist at Columbia Threadneedle Investments, says the trade war between China and the US has created major market volatility and a feeling of uncertainty across the world.

“We have the two world’s economic superpowers initiating policies that put an effective halt to trade between them, and the rest of the world faces uncertainty and the prospect of trying to soften the tariff impacts via negotiation. This is undoubtedly an act of economic self-harm by the US but based around an ideology that wants to boost domestic manufacturing and inflict pain on the other economic powers like the EU and China.”

Willis says the asset manager is watching for “any signs of weak survey numbers filtering into the hard data” which would indicate a hard landing, adding: “That would cause a change in our view and likely trigger further downside in markets that are yet to fully price in the prospect of recession.

Given the complexities of the current geopolitical landscape, Olivier d’Assier, Head of Investment Decision Research, APAC at SimCorp, reminds asset managers of the importance of stress-testing portfolios.

“The surest way to lose money in a Trump world is to assume you know what he will decide to do at any given time. His management style increases unpredictability for investors across a wide range of issues, all with direct impacts on financial markets,” the firm states.

They add: “One way to protect your portfolios in this environment is to model possible scenarios in advance and measure their potential impact on your existing portfolios. This allows you to make informed decisions about any rebalancing that may be needed, not only to navigate market uncertainty but to potentially capitalise on it as well.”

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