As we enter 2017, we would like to take a step back and reflect on the evolution on the macro-financial system in which we operate. We will start by depicting the main change trends in our environment, before trying to identify the risks we face and how to make the most of them. We will then explain our asset allocation strategy.
The equilibrium rate for risky assets is still low and should remain so, as none of the conditions for a hike are met today. The demand for credit is not on the rise, secular stagnation has not been reversed (no increase in population nor productivity), and there is no massive portfolio reallocation towards risky assets (or as the Central Banks would call it, no Portfolio Balance Effect).
In such a context, strategic allocations are still not optimal, as government bonds exposure remain too dominant. The idea of a low equilibrium interest rate should increase the weighting of risky assets and make the medium-term preservation of capital even more unlikely.