Wednesday, 28 June 2023
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MID YEAR ECONOMIC OUTLOOKS FROM THE BIG HOUSES
ITS THAT TIME OF YEAR WHEN ALL THE MAJOR BANKS PUBLISH THEIR ECONOMIC OUTLOOKS, MANY DIFFER SO TAKE YOUR PICK OF WHO TO FOLLOW;
An ounce of optimism, a pound of prudence. It’s still a good time to be measured about taking risk in equities, but we believe the longer-term horizon holds particular promise for active stock pickers.
2023 is turning out to be a better year for economies than we had envisaged, but we still believe a recession is more likely than not. Given the rally we’ve seen in both stocks and bonds since the start of the year, we’re therefore more inclined to be well diversified with a focus on quality. • Our macro “base case” on a 12-month horizon is little changed from the year ahead outlook, although elevated valuations now make it more difficult for us to argue that markets are appropriately priced for the slowdown we still see ahead. • Against this backdrop, we believe that investors should look to boost the resilience of equity portfolios by focusing on a combination of high-quality names, strong dividend payers and regional diversification. • We also think that adding exposure to alternative asset classes, such as infrastructure, could provide a more defensive stance to portfolios, while delivering some inflation protection and attractive income. • Finally, we believe a key theme that active investors should keep a close eye at the moment on is scarcity, with opportunities being created by the supply shortages we are currently seeing across energy, materials, food and labour markets.
Investors should consider high-quality long-duration bonds, equities in Japan and emerging markets, and mortgage-backed securities through the end of 2023.
Taking a step back, we examine the longer-term, yet burning, topic of “de-dollarisation” and what it might mean for investors. Beyond our asset class and financial market analysis, we examine how investors might reduce the biodiversity risk that lurks in their portfolio.
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.
This is a time when investors are looking for a way forward. While headlines about US debt, the impact of artificial intelligence, US-China tensions and the war in Ukraine dominate the news, we believe the landscape for investing has the potential to evolve positively.
Of the last 9 Federal Reserve tightening cycles, seven have resulted in recession.
STATE STREET GLOBAL ADVISORS
Heightened liquidity risk and softening growth prospects demand vigilance from investors. Persistent uncertainty and recession risks warrant cautious portfolio positioning.
For investors, we think the coming months will likely deliver more than their share of twists and turns. Whether negotiating the path of interest rates or confronting the possibility of recession, it will be essential to stay agile, because opportunities should also arise. Learn how to prepare for what comes next – and be ready for the entry points that market shifts may bring. https://www.allianzgi.com/en/insights/outlook-and-commentary/mid-year-outlook-2023
As we reach the midpoint of 2023, it’s clear we are facing tremendous uncertainty and change. We are moving through a period of transition in the global economy, the financial markets and individual sectors. What had been a binary market —a market that was either/or —is now more balanced.