Mid-year Outlook 2023 - Out of Sync
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Welcome to our House Views. This update comes at a very pivotal moment, as the Fed is finally taking a pause in the fastest hiking cycle since the 1980s. This rapid tightening of financial conditions inevitably caused a downturn in the credit cycle. We think that current macro and market conditions make the case for creative thinking around geographic and asset diversification. |
Economic cycles are increasingly disconnected. Political cycles and a new ‘multi-polar world’ amplify this process. The economic outlook is uncertain and a new economic regime is coming into view. Investors need new rules to construct portfolios for this new environment.
Our central scenario is for a recession environment in western economies, and a difficult, choppy outlook for markets.
The title of our investment outlook is ‘Out of sync’. And the reason for that is to reflect that global economies along with fiscal and central bank policies are quite divergent at the moment. They are not in-sync.
We talk about the global economy, or the equity market. That’s not really the right approach in an out of sync world.
- Western and emerging economies look out of sync, with the West remaining under pressure amid sticky inflation, higher interest rates and tighter lending
- Emerging economies continue to benefit from lower inflation, China reopening and a weaker US dollar
- Complex, divergent economics creates unsynchronised markets. This environment means that there are new opportunities for diversification and relative outperformance
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Click on the drop down below to read the key findings from the report
New rules for a new environment
Economic cycles are increasingly disconnected. Political cycles and a new ‘multi-polar world’ amplify this process. The economic outlook is uncertain and a new economic regime is coming into view. Investors need new rules to construct portfolios for this new environment.
In the past, many investors have relied on the 60/40 (stocks/bonds) portfolio. But there is a big question about the future return profile of that allocation, and question marks about whether bonds still offer reliable diversification.
Where to look for new diversifiers
Alternatives – especially allocations to real assets – can play an important role for investors. And the diversification opportunity within emerging and frontier markets has never been better. We call this ‘intelligent diversification’. It means that investors can capture idiosyncratic stories.
In India, for instance, the structural, long-run story – revolving around productivity, digitisation and high-end manufacturing, the infrastructure push, and strong demographics – remains strongly intact. This creates interesting opportunities, especially in how we incorporate thematic exposures into portfolios.
Exploring the potential of thematic investing
Exposing portfolios to important megatrends – like technology – can also be a unique source of return and diversification. It is important here to take a systematic and disciplined approach, in order to avoid the well-documented hype cycle and inherent risks to capital in thematic investments.
Mid-year Outlook Report
Out of sync
Investment expertise
The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. Past performance is not a reliable indicator of future performance. Any views and opinions expressed are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. We accept no liability for any failure to meet such forecast, projection or target. This webpage has not been reviewed by the Securities and Futures Commission. The information provided does not constitute any investment recommendation in the above mentioned sectors, asset classes, indices or currencies.