Where do you expect commodity prices - especially oil and food prices – to go from here? In our opinion, oil and food hold the key to both the shortterm outlook for financial markets and the short to medium-term outlook for the global economy. If you expect oil and food to continue their rapid increase, stay away from risk assets. If you expect oil and food prices to stabilise or fall, consider increasing risk now.
We are of the latter view and thus continue to recommend both a slight equity overweight and an EM bias. However, as we judge our short term commodity forecast capabilities to be very limited, we remain fairly cautious in our allocation. We judge the latest selloff in risk assets to be absolutely overdone and are biased towards increasing risk further, but since short-term performance will ultimately be decided by factors outside of our
understanding, we retain our current allocation for now.
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