Global investors are turning their attention to European and emerging market assets as U.S. stocks and bonds face turbulence due to stubborn inflation and uncertainty around Federal Reserve interest rate cuts. April saw the S&P 500 share index and U.S. Treasuries suffer their biggest monthly loss since September, prompting money managers to seek ways to protect their portfolios.
Sonja Laud, CIO at Legal & General Investment Management, emphasized the importance of diversification in the current market environment, favoring European shares over U.S. equities. Amelie Derambure, senior multi-asset manager at Amundi, also took precautions by purchasing put options to guard against a potential 10% drop in U.S. stocks and shifting some investments from Treasuries to euro zone bonds.
The European Central Bank’s expected interest rate cuts in June, along with moderating euro zone inflation, are driving investors towards European assets. Ross Yarrow, managing director for U.S. equities at Baird, noted that global investors are increasingly negative towards U.S. stocks due to valuation concerns, despite Wall Street’s history of superior revenue growth.
While U.S. Treasury bonds experienced a significant drop in April, emerging market bonds are gaining traction as investors seek opportunities in countries like India, Indonesia, and Vietnam. Nathan Thooft, chief investment officer for multi-asset solutions at Manulife, highlighted the potential in dollar-based emerging market debt as a favorable risk perspective.
Despite the challenges of diversifying away from U.S. assets, investors are exploring opportunities in Europe and emerging markets to navigate the current market conditions. The interconnectedness of global markets presents complexities, but investors are optimistic about finding outperformance in alternative regions.