Risky assets are coming under pressure against a backdrop of ongoing political uncertainty and rising trade tensions, according to Fidelity International investment director Andrea Iannelli.
In Europe Iannelli highlighted higher yielding German bunds, saying the formerly positive investment case for the assets in light of a stabilising European macro environment “has been put in jeopardy by the recent turn of events on the trade front”.
Fidelity has revised its European duration exposure in response to the “worsening” outlook.
The firm is also wary of Italian government bonds in the wake of increased support for populist parties in the European parliament elections led by Italian deputy prime minister Mateo Salvini and right-wing French politician Marine Le Pen.
“Salvini now feels emboldened by the strong consensus gathered at European level and has already ramped up the rhetoric against the European Commission as the Autumn deficit negotiations get nearer,” Iannelli says.
In a commentary on Fidelity’s position, Iannelli wrote that the macro picture “remains clouded” by the ongoing trade row.
“Auto tariffs have been postponed to the autumn, but the issue is only temporarily off the radar, while the manufacturing sector remains in the doldrum,” he wrote.
As UK politics continues to be influenced by Brexit and the replacing of Theresa May as prime minister, the country’s macro backdrop “remains challenging”.
“Gilts will remain heavily influenced by other rates markets,” Iannelli said.
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