2023 2Q Market Outlook
04 Apr 2023
A renewed stream of funds is flowing back into Chinese stock markets as global investors adjust their positions in China to a more neutral if not overweight allocation. We will remain defensive and retain our overall underweight position in global equities whilst being relatively overweight in Asia in particular China / Hong Kong at this point in the tightening cycle.
USD regained its strength on the back of strong economic data and a hawkish Fed after a rapid pullback during the beginning the year. A strong dollar backed by interest rate differentials is not supportive to risky assets in particular emerging markets equities. We remain overweight in short duration developed market investment grade bonds, and we will also begin to add duration to our fixed income allocation as a hedge against the continued risks of economic slowdown in developed economies.
2023 will be a tug-of-war between inflation and recession. Inflation has proved to be extremely sticky over the pastyear and it is difficult to believe it will trend down sharply in the near term, especially if the target is the oft-emphasized 2% by both the Fed and the ECB. A deep US recession may not be imminent, given the resilience of the labor market. We maintain our balanced investment strategy with key allocations to value equities, short / medium duration high investment grade bonds and alternatives.
Key risks to our assessment includean escalation of the Russia / Ukraine conflict, further US / China tensions, slower than expected recovery in China, renewed inflation pressure and more central bank hawkish actions.