Please note, the below commentary and data reflects our asset allocation positioning as at end of February. We are, of course, closely monitoring events surrounding volatility in the US and European banking sectors and will provide asset allocation perspectives on that in our next month's Viewpoints update.
1. Market Perspective
- Global growth is proving resilient in the face of tighter monetary policies; however, impacts of central banks' tightening are still expected to weigh on the economic growth and earnings outlook in the back half of the year.
- Despite declining goods inflation, services inflation remains sticky on the back of higher wages, keeping the US Federal Reserve and other central banks hawkish.
- While uncertainty remains, optimism surrounding China's reopening and resilient growth in Europe, supported by declining energy costs, could help buoy the global economy.
- Key risks to global markets include central bank missteps, resilient inflation, steeper growth decline resulting in a hard landing and geopolitical tensions.
2. Portfolio Positioning
As of 28 February 2023
- We remain underweight equities and bonds in favour of cash. Equity valuations remain extended in the face of tightening liquidity and slowing growth. Bond yields are likely to remain volatile amid mixed economic data and central bank policy shifts, while cash offers attractive yields and stability.
- Within equities, we are overweight areas with more attractive valuation support such small‑/mid‑caps, Japan and emerging markets (EM). We also maintain a broad balance between value and growth—with a modest overweight to value—to reduce exposure to extreme interest rate sensitivity and cyclicality.
- Within fixed income, we remain overweight emerging market bonds, where yields still offer reasonable compensation for risks despite persistent market volatility.
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