Time to increase risk exposure: start with emerging markets and credit

The excess of pessimism at the end of 2018 resulted in a sharp decline in financial markets and renewed volatility. According to our analysis, market participants priced in twice the slowdown risk that economic fundamentals justified. We think that risk assets have now reset to more attractive levels and some “entry points” for long-term investors are materialising in emerging market (EM) assets and developed market (DM) credit, both of which suffered brutal valuation resets last year, the former in the first part of 2018 and the latter at the end of the year. European equities could follow in this “entry” sequence, but we believe more robust opportunities will materialise later in the year as the European elections in May (and Brexit) could continue to weigh on investor sentiment.