With the US economy likely late in its cycle, equity markets fully valued and increased volatility following the Brexit decision, there are significant risks to the outlook for global equities, an industry expert said.

“Our preference is to err on the side of caution by trimming equity exposures where appropriate and focus on more defensive areas of the market,” added Steve Brice, chief investment strategist, Standard Chartered Bank.

He was commenting on the H2 2016 Global Market Outlook released by Standard Chartered Bank’s Wealth Management Advisory Group. The report provides a six-month review of 2016’s A.D.A.P.T. investment framework and analyses key market scenarios for the rest of the year.

“Given the possibility of improvements in the performance of equities and positive earnings surprises, investors should still return a significant allocation to equities. These rising uncertainties in equity markets also signal a need for investors to adapt by increasing their allocation to more defensive asset classes, such as US investment grade corporate bonds and global macro strategies,” said Brice.

“The key question that clients ask is, how to derive value in this uncertain environment,” said Alexis Calla, global head of Investment Strategy and Advisory, Standard Chartered Bank. “We believe multi-asset income remains a key theme, but we would complement this with more absolute return multi-asset strategies in order to managed allocation drawdown risks.”

Emerging Market (EM) equities are expected to continue under-performing, particularly with China quickly backtracking on the economic stimulus implemented earlier this year. “With the growth differential expectations between Developed Market (DM) and EM a key factor in the relative performance of each investment class, and a lower conviction as to which regions will outperform or underperform, a more balanced exposure within equities may make sense,” the report said.

“From a commodities perspective, we are more bullish on the outlook for gold and oil than for base metals. Gold looks set to target $1400 in the coming 3 months while oil prices are likely to be capped around $60-65 per barrel,” the report noted.

Amidst continuing challenges in today’s investment environment, the focus on diversified income investing within A.D.A.P.T. remains a key theme. “The bottom line is that focusing on just one asset class is very risky – investors should adopt a balanced approach to investing, including some inflation hedges,” said Calla. – TradeArabia News Service