The path to recovery for the global economy looks as firm as it has been since the financial crisis, but high uncertainty looms heavily both in Europe and the US. As a result, our strategy focuses on two periods - before and after a politically-laden Spring. In this note, we review a number of factors. We examine the (good) global economic momentum and the political risks coming from the US, chiefly in the shape of tax and financial regulation reforms. We also present our French polls aggregator (suggesting at this stage a close race between François Fillon and Emmanuel Macron to reach the second round) and spreads – where we believe French-specific risk is lower than analysts report. In the near-term we remain cautious and will look to protect against the on-going near term political risk, leveraging off the very low levels of volatility to hedge portfolios. But, once the French election has passed and we have more clarity on US policy around tax, trade and financial deregulation, we expect a risk-on appetite to return, albeit with a level of caution, which is appropriate for a cycle that is reaching its peak.
Source : AXA Real Estate