“We downgrade Commodities to underweight over 12 months, significant downside potential for gold, copper and soybeans and down side risks from supply to our relatively benign forecast for oil – we remain overweight Equities.”(Goldman Sachs)
(i) Equities: We remain overweight over both 3 and 12 months. Returns should be supported by better global growth, healthy earnings growth and still high risk premia.
(ii) Commodities: We are neutral over 3 months where tight inventories offer support for oil prices. We downgrade to underweight over 12 months, where we see significant downside potential for gold, copper and soybeans and down side risks from supply to our relatively benign forecast for oil.
(iii) Corporate credit: We expect the search-for-yield environment to remain strong and push spreads a bit tighter from here. Corporate re-leveraging remains the main risk to credit quality. Within credit, we prefer high yield over investment grade. We stay neutral on the asset class.
(iv) Government bonds: Bond yields are in line with our estimates of current fair value and we see the near-term risk-reward as balanced. Longer term, we continue to expect yields to rise as growth improves. We remain neutral over 3 months and underweight over 12 months.