While we recognise that some near-term risks remain, we retain the view that the global economy is likely to continue to expand, fuelled by an acceleration in global industrial production. We believe that September’s nonfarm payrolls number — albeit disappointing — will be sufficient to keep the US Federal Reserve (Fed) on track to announce the start of a tapering of their asset purchases at the November meeting. The recent deceleration in US Covid-19 contagion and a pickup in high-frequency activity indicators suggest that payrolls should reaccelerate in coming months.

With supply-side bottlenecks proving more enduring than initially thought, the Fed and the European Central Bank are likely to keep liquidity conditions accommodative, helping to keep the growth environment favourable. We have thus tactically increased our portfolio allocation to developed market equities, implying a mild overweight in equities overall in a portfolio context. We keep emerging market equities at neutral even though the year-to-date decline in China’s equity market hints at an attractive recovery potential in the medium term.

For now, though, the confluence of China’s property sector jitters, power supply disruptions, regulatory regime uncertainty and sluggish consumption recovery constitutes meaningful downside risk to Chinese growth. In this environment, China’s policymakers could well resist meaningful appreciation in the yuan (CNY) to support the external growth engine.

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