Asset Allocator's proverbial carrier pigeon brings forth the latest update from Tatton.
The firm's chief investment officer Lothar Mentel says markets have been volatile this month as investors embrace "groundhog day" with inflation and rate worries returning to centre stage, and recession fears receding.
Mentel’s view is that we could have an "earnings recession", rather than a proper economic downturn.
He says: "Lots of the inflation last year was caused by companies putting their prices up, their margins expanded. But they have less capacity to do that this year, so I expect earnings to decline, and that of course is very bad for markets even if it doesn’t cause a wider recession, which is why equities have been volatile.
"Markets and economies are not moving in tandem, which sometimes happens. Last year we were neutral in our overall exposure to equities, but titled somewhat towards value and away from growth, and we moved away from the US market and towards Europe, and since the start of this year, we have been moving towards China.
"The economy is reopening there and people will want the same things that Europeans and Americans wanted when we re-opened, so that is a positive for China and Asia generally."
Mentel said he believes US equities are currently overvalued and that inflation in Europe has moved into the wider services economy, even as supply chains have opened up.
