Edmond de Rothschild has upped exposure to US treasuries and dismissed fears of hyperinflation coming to the fore.
In the private bank's March update, Benjamin Melman, who is head of asset allocation, said the recent rise in bond yields means investors no longer have to ‘steer clear’ of US treasuries, especially with interests rates expected to jump.
‘The Fed itself is expecting inflation to rise which is why it is mulling three, and now perhaps four, rate hikes this year,’ said Melman.
‘Inflation so far has always fallen short of expectations. It would first have to rise at a quicker pace to meet the Fed’s scenario before we should start worrying about it overshooting.’
Melman also warned against the potential blowback which could come through over-estimating the likelihood of a trade war.
He said: ‘Washington’s introduction of import duties on steel and aluminium has, for the moment, only been symbolic as it will have no visible impact on the global economy.'
Melman said more obvious protectionist developments would be a greater concern. However, a modicum of risk premium is being added in markets at present.
'At any rate, investors are in doubt and are currently factoring in a risk premium to reflect the possibility of a trade war and all the consequences that might have.
'For the moment, we believe it is too early to overplay this risk even if we are likely to see other twists and turns.’
Edmond de Rothschild has also raised equity exposure to its preferred zones, Europe and Japan, as the February sell-off came to an end. It also reduced weighting differentials with the US and emerging countries.