Hello everyone, and welcome to this month’s update to our read of investor positioning and sentiment for the month ended May 31st.

I’m Dwyfor Evans, head of Macro Strategy for Asia-Pacific and I have the pleasure of walking you through the message given by the changes in our indicators of institutional investor flow and positioning during the month of May.

Policy oscillations around trade – the dominant macro narrative – continue apace after the Liberation Day announcement in April, but a perceived normalization of tariff uncertainty and implementation delay has emboldened investors once more towards a more constructive sentiment on asset class exposure.

Risk sentiment, as illustrated by the multi-asset Behavioural Risk Scorecard, recorded its highest level since early February at the end of May. This in part reflects the on-going narrative around Trade tariffs, but specifically implementation delays and the 90-day deadlines, allied to lower effective tariff rates than initially envisaged. The upshot is that the Behavioural Risk Scorecard has risen to a score of +8 as investors dipped their toes back into risk assets.

But let’s take a closer look at some aspects of behaviour to see what institutions have done across and within asset classes. At the highest level of positioning, looking across weights to stock, bonds and cash, the past month saw a 0.9% increase in favour of equities relative to a 0.8% fall in bond holdings. By end-May, this took aggregate portfolio weights in equities back to levels last seen in the first week of April, that is around the Liberation Day announcement and represents a complete reversal of asset class preferences in the intervening period.

This focus on equities is notable in the context of regional preferences. As illustrated in slide 4, institutional investors have been overweight US equities for some time, but adjusted lower their holdings earlier in the year. In contrast, we saw investors reduce their underweight in Europe and begin to build an overweight. May has seen a reversal of these trends – US equities are back in vogue, while exuberance on European equities has receded once more. The overweight in US equities remains firmly in place, if lower than at the start of the year. This sell America trade has certainly been challenged as far as equities are concerned.

Currency flows are perhaps one of the areas we can most clearly see a move away from the US. Selling of the US dollar continues and, for the first time in more than three years institutions are running a net dollar underweight. As we noted last month, this was a trend that began with domestics investors hedging less of their foreign asset exposure back to dollars. Foreign holdings of dollars thus represent a potentially significant source of USD selling to come if they decide to hedge away the FX risk embedded into the holdings of US assets. A change over the course of the month is how investors treated safe havens: initial buying in the EUR, JPY and Swiss Franc reversed course once sentiment improved. With that, we saw traditional safe haven selling and buying across both commodity and EM currencies. In the former, flows in the Canadian dollar recovered strongly, while in EM, there was renewed buying of emerging Asia, ostensibly on the view that trade deals with the US would be partly cushioned by stronger local currencies.

To close, the message this month is one a return to risk.

Flows into cyclically sensitive equities remain healthy relative to more defensive counterparts, higher yielding sovereign and corporate bonds are finding favour, as are higher yielding and Emerging market currencies. And the dollar, as I mentioned is still a risk-positive outflow. This offsets some of the negativity that we see continue to see in the fixed income space.

All told, investor optimism and I wish you good luck in the coming weeks.