Allianz investment boss: US in ‘sentiment recession’
The US is currently going through a “sentiment recession,” as economic indicators fail to match the increasingly sour outlook from American consumers and businesses, a boss at Allianz’s investment arm has argued.
Hard economic data in the country has so far managed to hold up despite significant uncertainty, as companies frontloaded buying inventory in advance of tariffs coming into effect, explained Gregor Hirt, multi-asset chief investment officer at Allianz Global Investors.
But Hirt warned that while the world had avoided the worst-case scenario of a global trade war, the status quo still created tax levels that will be disruptive to the global economy.
“Whereas last year was the calm before the storm, this year truly is the storm,” Hirt told City PM.
Share prices have also held up in the US, as “retail participants have been drilled over the last 20 years to buy the dip,” their participation in the stock market has helped the S&P 500 back to above its level before ‘Liberation Day’, he explained.
“Does it really make sense that in an environment that we started with no tariffs, we had the fear of a trade war, and we’re now above that level?” he asked.
Since “valuations in the US are still pretty extreme, but the potential for earnings has gone down,” meaning that as retail investor money flows subside, he expected another market correction in the country later in the year.
Virginie Maisonneuve, equities chief investment officer at Allianz GI, added that while US shares currently made up around 70 per cent of all global stocks, she expected the number to fall closer to 50 per cent as the high valuations of American companies are re-assessed.
The best performing assets in recent months have been European and Chinese tech equities, she noted, as “the world retreated from the massive overweight they had to the US”.
Allianz portfolio allocation
Hirt added that Allianz had cut allocation to gold substantially in its portfolios from 25 per cent to seven per cent, as the risk of a full-blown trade war had fallen away.
The insurance giant’s investment arm is also still positioning its portfolios for further chaos in the bond market as the yield curve continues to steepen, as the US sheds its safe haven status.
However, it did see significant opportunities in the defence sector, as Europe increasingly moves away from relying on the US for military action.
There will be a “minimum two years” until European governments ramp up defence spending significantly, “but the market will move before,” said Maisonneuve
Some of the best performing stocks on UK and European markets this year have been defence stocks, including Rolls-Royce and Chemring.