Market and strategy update

Market and strategy update

8 December 2022
What you need to know
Big Picture

We expect the world economy to continue to slow in the beginning of 2023, with regional recessions (mostly in UK and Europe). We think that a peak in inflation, combined with China’s moderate rebound, will lead to some stabilisation in growth from next spring, with a relatively modest recovery after the summer. Three shifts will, in our view, contribute to this.
  1. Inflation: US inflation will move past the peak and decelerate first, followed by Europe, albeit still remaining above pre-Covid levels.
  2. Rates: Developed Market central banks will stop raising rates and turn more prudent in their communication, particularly once the Fed announces a pause to rate increases. EM central banks could be the first to cut interest rates - they were the first to raise them in this cycle.
  3. China: Growth will pick up with Beijing moving away from their zero-Covid policy and adding extra stimulus.

What’s changing?

Our investment views:
Fixed income:  
More detail on our tactical positioning

Fixed Income – The year of the yield

Bonds are attractive again following a steep rise in yields in 2022. As growth slows and inflation eases, we believe interest rates and bond yields, currently at compelling levels, should peak. So we position as follows:  
EquitiesEquity valuations improved in 2022, but growth matters.

As previously mentioned, conditions for a broad-based rally are not met yet. This underscores our selective approach. Despite our asset allocation changes, our overall equity exposure remains slightly reduced versus our long-term strategic asset allocation. Therefore, we: Cash & Gold – A weaker USD, but not by much

We believe the US dollar strength should continue to wane and then weaken, but the rebound of the EUR and GBP will likely be capped. This is due, in our opinion, to growth headwinds, the energy risk premium for Europe, and all central banks pausing interest rate increases. In short, we:
If you have any questions about our latest market views or the changes in your portfolio, please speak to your client advisor who will be happy to help.


Important Information

Non-Independent Research
The information contained in this article is defined as non-independent research because it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research, including any prohibition on dealing ahead of the dissemination of this information.

How to Use this Information
This article contains general information only and is not intended to constitute financial or other professional advice or a recommendation that any recipient of this information should make any particular investment decision. Always consult a suitably qualified financial advisor on any specific financial matter or problem that you have.
Except insofar as liability under any statute cannot be excluded, neither Brown Shipley nor any employee or associate of them accepts any liability (whether arising in contract, tort, negligence or otherwise) for any error or omission in this article or for any resulting loss or damage whether direct, indirect, consequential or otherwise suffered by the recipient of this article.

Investment Risk
Investing in stocks either directly or indirectly carries investment risk.  The value of equity based investments may go down as well as up over time due to factors such as, market volatility, interest rates, and general economic conditions.

Information correct as at 8 December 2022.

Past performance is not a reliable indicator of future returns

© Brown Shipley 2022 reproduction strictly prohibited.