Global Outlook Q4 18

Welcome to our quarterly outlook, where we review the third quarter of the year and share our thoughts for the months to come.

As highlighted in our Q2 outlook, “the world is bifurcating” and this happened to be the case again during the past quarter. Indeed, the U.S. economy and corporate America have been outperforming the rest of the world and the trend has been reinforcing during the third quarter. This macro-economic and fundamental performance divergence has translated into financial assets relative performance, with U.S risks assets clearly outperforming.

Performance divergence has not been occurring solely across international equity markets. Within U.S equities, “Growth” style has been outperforming “Value” style for seven quarters in a row. There are also large performance dichotomy within commodities or credit. 

As we enter the final quarter of the year, a key question for investors is whether these divergences will ultimately be reconciled. In other words, will the trends observed during the first 9 months of the year persist in Q4 or on the contrary, should investors start to rotate their portfolios to benefit from a potential recovery of the regions and asset classes which have been underperforming so far this year. The 4th quarter of the year has historically been a favorable period for mean-reversion. It is thus the right time to re-assess the investment case for emerging markets, European equities or the “value” style.

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