“We have reduced positions in the euro zone and Japanese shares to neutral and underweight respectively because the risk of supply chain disruption is not fully recognised.
“Moreover, their economies are struggling to grow, and their central banks are running out of firepower.
“We remain positive on the UK where companies’ preparations for Brexit may help them weather virus-related supply-chain disruptions.
“We also remain overweight emerging markets and China. Policymakers in the emerging world have cut rates faster than their developed market counterparts.
“The Chinese government is likely to be successful in imposing measures that support its economy – through fiscal and monetary stimulus and direct support of its banking sector.
“Sector-wise, we have also reduced allocations to industrials and financial stocks. Conversely, health care stocks look set to benefit from immediate demand for medical and pharmaceutical products.
“Gold and US T-bills still offer protection from the financial and economic effects of the coronavirus. We remain overweight both.
“US policymakers have room for manoeuvre. Analysis of monetary easing cycles from 1970 to today suggests that the Fed could cut rates by an additional 150 bps and buy up to a further USD3 trn in assets.
“Being overweight gold also makes sense with demand increasing. By contrast, corporate bonds look especially risky – spreads are not compensating investors and credit quality is deteriorating. This suggests that a future economic downturn could result in higher default rates than past credit busts.”
