I think over the last few years emerging markets (EM) have been outshone by the US. We have seen a lot of money pulled into the US equity market especially. However we see the US beginning to roll over this year, so I think from that point of view there are fewer attractive opportunities. With the rest of the world, and maybe the eurozone in particular, not looking so attractive we think EMs, just in relative terms compared with the rest of the world, are beginning to look more attractive as yields have picked up and we have seen a big improvement in the external balance and so EM assets look fair value as well. We think the key risk is if US growth accelerates again and we get a much stronger US dollar, because EMs have traditionally struggled in a strong US dollar environment. That is probably our main concern. There are risks, too, in the trade war but we think that is much more likely to be a problem in terms of generating a strong US dollar than in its own direct macroeconomic effects.
Systematic investing is, at its most basic, simply rules-based investing. People focus on these strategies today because we are in what feels like a late cycle environment and they are not driven by global growth rates and interest rates unlike most portfolio risk; so we find people are looking at systematic strategies more today because of where we are in the cycle but they are absolutely relevant for all parts of the cycle. Our view is that systemic investing has quite a strong advantage over discretionary investing in that its rules-based approach applies to the risk management – the risk management is very well defined and therefore you do not change your mind once you're in a trade that you love for example. The risk to systemic versus discretionary, in our view, is if the investment environment completely changes to something that has not been seen before models may be slower to adjust; but history tells us that most things tend to rhyme in some way with what we have seen before.
We think European equities an asset class that is very much misunderstood; it's an asset class that is more global than is recognised. Essentially over the next decade we anticipate seeing hundreds of millions of new middle-class income consumers and 80% of these will be in Asia. Although we worry about inequality and the disappearance of the middle class in the US and the UK, that is very much a Western world phenomena, and if you look at what is going on globally there is an unparalleled expansion in the global middle class but it's just all occurring in EMs. I think one of the areas of risk that concerns us is if a significant break down in the multilateral trading order took place, which we think would not be good for equities in general, although it would probably affect sentiment more than the underlying economics of companies but that is probably a risk that worries us more than worrying about Italian debt to GDP or French protestors, for example.