Xie Kangru, Head of Diversified Asset Investment at Schroders Investment, stated that based on the prediction of a larger possibility of an economic "soft landing" in the United States, they maintain a positive view on the overall stock market. However, with the current market volatility, adopting a more balanced investment strategy that combines growth and income is more appropriate. Given the narrowing gap in earnings growth forecasts between U.S. technology stocks and other sectors, they have a neutral view on high-valued U.S. technology stocks, and sectors with more attractive valuations in the market may be more worth investors' attention.
In terms of investment themes, they continue to be optimistic about four long-term investment themes: technology transformation, energy evolution, connected consumer, and transitioning societies. Regarding the theme of technology transformation, they still have a long-term positive outlook on the growth potential in areas such as digitalization, cloud computing, robotics, and cybersecurity. Additionally, the connected consumer theme includes companies related to e-commerce, logistics warehouses, data centers, and fintech, while the transitioning societies theme concerns issues such as healthcare innovation, urbanization, and smart cities.
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As for cyclical investment themes, the recovery of commodity demand and businesses with pricing power in an inflationary environment are also themes they are currently more optimistic about.
Schroders Investment mentioned that global stock markets experienced severe fluctuations in August, fortunately, these fluctuations were a false alarm, and rebounds followed after market panic. The Nikkei 225 in Japan once suffered the largest single-day decline, followed by a significant rebound; the U.S. stock market also experienced a similar situation, with slowing U.S. employment and manufacturing data once suppressing market sentiment, but as retail sales data were released beyond market expectations, the U.S. stock market regained its upward momentum.
It is not uncommon for the market to experience short-term sharp fluctuations, and investors can adopt diversified investment strategies to navigate market waves in a more flexible manner, buffering the impact of short-term volatility on investment portfolios. Investors diversify their investments across stocks, bonds, and different asset classes, mixing long-term structural and cyclical investment themes, which helps to handle different market conditions adeptly.
With the U.S. Federal Reserve finally cutting interest rates by 0.5% as expected in September, this has raised market concerns about the possibility of the U.S. economy falling into a recession. The rise in U.S. Treasury bond prices also reflects the market's certain concerns about economic weakness. Despite recent market fluctuations, a "soft landing" for the U.S. economy remains the basic forecast. The increase in labor is one of the reasons for the recent weakness in U.S. employment data, partly related to weather factors. Overall, as long as inflation continues to develop in the right direction and continues to show a downward trend, this will provide the Federal Reserve with enough flexibility to prevent an economic recession from occurring.
In terms of bonds, Schroders Investment stated that due to controlled inflation, the role of bonds as a hedge against recession risks in the investment portfolio will continue to increase. At the same time, as the yield curve gradually flattens, government bonds may regain their appeal as a major risk-diversification tool. Based on these two factors, they hold an optimistic view of the bond market. In addition to U.S. Treasury bonds, given market expectations for further interest rate cuts by the European Central Bank, this has stimulated demand for bonds issued by interest rate-sensitive industries.
At the same time, investors can consider expanding their investment asset categories beyond traditional bonds, such as securitized credit, which is one of the preferred assets at present. Compared to U.S. investment-grade bonds, securitized credit can increase the overall investment portfolio's yield and credit quality while reducing duration risk.