BALANCED
Pressures afflicting regional US banks are likely to restrict lending to households and companies, but any economic impact is likely to be moderate as both segments can still draw on considerable savings. In this environment, we are sticking by our scenario of modest growth in 2023 in leading developed economies and a stronger recovery in China.
We expect central banks to “peak” but not yet “pivot”. Having hiked rates substantially over the past twelve months, central banks seem now to be nearing the end of their monetary tightening phase, the peak. However, we think it is still too soon for the switch to monetary easing, the pivot, in contrast to what market investors seem to expect, specifically for the US. While headline inflation should come down quickly thanks to falling commodity prices, it will be some time before core inflation reaches central banks’ 2% target rate.
As a result, we maintain our strategic balance between equities and bonds with a degree of regional differentiation. Our highly diversified positioning protects us against any fresh market turbulence. In our equity exposure, we are retaining our regional differentiation by remaining Overweight UK and Continental European equities and Underweight the US market.
European markets remain more attractive on value and better corporate earnings momentum, whereas US investors overestimate the prospects of rate cuts in their region.
We further retain a Neutral allocation to government bonds, although remain on the shorter end of the curve to mitigate the impact of ongoing volatility in rates markets.
We expect central banks to “peak” but not yet “pivot”.
In this month's episode Fahad Kamal, Chief Investment Officer, and Andrew Thompson, Head of Investment Management at SG Kleinwort Hambros, investigate market movements that have taken place since the beginning of the year.
What can we expect in the future? Tune in to hear their thoughts.
