Themes: We continue to view rising inflation as the key macro theme and believe inflation will rise much more than the market expects (we see the US 10-year breakeven eventually rising to 3%). This is likely to drive investors into real assets, GEM equities and materials. We believe industrial production will catch up to consumption, and hence we are overweight industrial cyclicals and focus on opex names (employment agencies, software). We also focus on cheap indirect GEM exposure (e.g. alcoholic beverages).

Our top non-macro theme remains companies that facilitate a reduction in carbon emissions (with a particular focus on wind operators, insulation, industrial gases and copper).

Style: We reiterate our overweight of European value (having upgraded in mid-May) and maintain a small overweight of US growth. We stay overweight small caps globally (having upgraded in late June).

Sectors: We reduce cyclicals to benchmark. We take banks and telecoms up to overweight. Our top overweights remain mining, construction materials, renewable utilities and containerboard. For the first time since 2010, software is not our top overweight (it is now our fifth most preferred sector) and we have become much more selective in tech (we like telecom equipment, China tech and DRAMs). Our top underweights are big cap pharma, luxury, IOCs, non-content media and household products.