The economic surprise index is now a more supportive factor,

After Greece earlier this summer, China took the centre stage in August. Despite different measures taken by Chinese authorities to contain the collapse of its equity markets since its historical highs in June and to support and boost growth, disappointing economic data, mainly concerning the manufacturing sector, have strengthened investors’ concerns of the global contagion of a possible economic hard landing in China. As mentioned in our special report, China is hard learning rather than hard landing, we are convinced that Chinese authorities have some room for manoeuvre to manage a soft landing. Nonetheless, the actual “rebalancing” of the economy (towards a domestic growth engine and a more service-oriented economy), driven by the government, inevitably lead and will lead to a slower economic growth. As the government seems to act through a “trial and error” process to handle the situation, volatility peaks should not be excluded in the coming months.

Beyond that, our economic scenario remains the same and is supported by fundamentals in developed countries. In fact, PMI levels continue to be clearly over 50 (except in China) : US Manufacturing PMI is declining since June but stays at 53, while Germany’s one reaches its highest levels since April 2014.

The euro zone seems to confirm to have not strongly suffered from a scepticism linked to the crisis in Greece as showed by Economic surprises index. The index is still progressing and is clearly above zero, reflecting an improving momentum in the Euro zone. In the US, the index has also rebounded after the disappointed start of the year. For the ten biggest economic area, the economic surprise index is stabilizing close to neutral level.

Thus, we still expect better economic momentum in the US and a firmer economic recovery in the euro zone, with stronger rebounds in peripheral countries like Spain or Italy. for the second half of the year.

Read the full Cross Asset Allocation Investment Strategy - September 2015