Fixed income manager BlueBay Asset Management forsees a bleak outlook for UK assets due to political upheaval and Brexit.
Mark Dowding, partner and co-head of investment grade debt at BlueBay commented: “As we digest the fallout from the election, we see less austerity and more scope for an expansionary fiscal policy with the economy appearing to slow as the prospect of Brexit becomes more of a reality.” Dowding added: “With 10-year Gilt yields below 1%, real yields are in deeply negative territory and look materially overpriced in our view. We favour bonds versus Gilts and more broadly see a bleak outlook for all UK assets looking forward with political upheaval likely to persist in the weeks and months to come.”
Elsewhere, Dowding said that the outlook in Europe is more cheerful. “Corporate credit spreads have continued to rally on robust growth, earnings and accommodative policies. Most sectors have continued to rally in the past week, notwithstanding a drop in tech stocks in the Nasdaq after recent strong gains.” Looking at the US, BlueBay said that the Fed is continuing to be accommodative and aims normalise policy gradually. In addition, technological advances show boost growth while keeping inflation down. “This should create a constructive environment for risk assets and ensure that policy remains benign and so we continue to believe that it is appropriate to remain positioned to benefit from carry within the portfolio, whilst protecting from a more general reflation trade should growth pick up and yields start to rise,” Dowding commented.