LONDON (Reuters) - Passive investment giant State Street (NYSE:STT) Global Advisors has pared back global equities in favour of safe-haven bonds and gold on concerns investors have become too complacent about risks such as higher inflation and rising interest rates.
The fund manager said that while an "ebullient macroeconomic backdrop" meant it was retaining a preference for growth-sensitive assets such as equities, credit and commodities, its tilt towards safer assets came amid warnings from in-house risk indicators.
"Complacency may not constitute a risk per se, but it leaves the market in a fragile state, more prone to being rudely awakened by, and overreacting to, the shocks that will inevitably come," the firm said in a report on Tuesday.
It added that as the growth differential between the United States and Europe starts to narrow and emerging markets continue to make progress against the COVID threat, the trend of U.S. market outperformance was likely to ebb.
Inflation was also likely to remain above pre-COVID levels for at least the next couple of years.
"Gold is supported by low real rates and a negative short-term view of the U.S. dollar," SSGA said, adding that Chinese stocks were also worth "particular consideration" and they were trading below long-term averages relative to the U.S. and the rest of the world, and also offered a diversification benefit.