Convictions

Dynamic asset allocation in a late cycle with inflation risk

Discover how multi-asset solutions could improve portfolios’ risk/return potential and diversification*

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Our main scenario for the remaining part of 2024 is a late-cycle phase with declining inflation. This will lead to three main arguments:

  1. a changing equity – bond correlation: to begin with, as price pressures stabilise, we expect a change in the equity-bond correlation dynamics; a lower correlation between the two asset classes will ultimately allow bonds to counterbalance riskier assets in a diversified* portfolio;
  2. a late cycle economic environment: We favour developed market equities and high quality credit in a late cycle environment where global revenues and profits are expected to show reasonably strong growth. The resilient labour market and positive wealth effects (higher net worth leading to higher consumption) should support overall consumption and corporate revenues, while moderating inflation should help stabilise costs, e.g. labour and production. Nevertheless, financial costs remain a concern, and high rates for longer could impact corporate profitability;
  3. a balanced investment style to control risks: we think investors should maintain a balanced approach in order to manage potential risks related to a sharper-than-expected US slowdown, and on the other hand, stickier inflation. This may be achieved through a positive stance on government bonds and a moderately constructive view on cyclical commodities.

To conclude, a diversified* approach encompassing different asset classes could help investors capture attractive opportunities, with a level of risk and volatility adjusted to each investor’s risk tolerance, time horizon and financial goals.  

Global 60% Bonds – 40% Equity allocation in Euro is performing above average in 2024 Source: Amundi Investment Institute analysis on Bloomberg data. 2024 performance is YTD as of 30 August 2024. Global balanced portfolio is made up of 60% Bloomberg Global Aggregate Bond index Hedged in Euro and 40% MSCI World TR in Euro (unhedged). Indices are with no fees and no taxation. Past performance is no guarantee of future results. -15% -10% -5% 0% 5% 10% 15% 20% e c n a m r o f r e p l a u n n A Annual returns Average
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* Diversification does not guarantee a profit or protect against a loss.

Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of 27 September 2024. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results.

Date of first use: 27 September 2024 
Doc ID: 3895158

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