Persistent trade tensions and rising geopolitical risks are taking their toll on the global economy. Indeed, Germany appears close to recession. But this is due to its high exposure to manufacturing, which has been the main victim of the ongoing trade dispute. Services and households continue to be resilient and should prevent a global recession. At a time of such elevated uncertainty, we prefer companies exposed to areas immune to trade tensions.

Sentiment towards equities improved in September on hopes of a US-China trade accord. However, limited upside to earnings and rich market valuations mean that equities are unlikely to break significantly above their trading range. That said, several opportunities exist for active managers to add alpha.

In particular, we keep our preference for quality stocks. While value stocks rebounded strongly against their quality peers in September after years of underperformance, quality stocks remain a more compelling investment style and are likely to regain the ascendency soon.

Despite concerns over high leverage levels and an economic slowdown, the outlook for investment grade debt is positive. However, security selection will be key for speculative grade debt this late in the cycle, as the risk of a surge in default risk rises.

Private debt assets under management have more than trebled in the ten years to 2018, buoyed by low interest rates and an expanding pool of negative-yielding fixed income securities. Prospects for the asset class remain positive, not least thanks to different strategies which benefit at different times of the economic cycle.

By Jean-Damien Marie and Andre Portelli, Co-heads of Private Bank Investments

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