A just-published report updated our multi-asset recommendations, and outlined our return expectations for the main global capital markets in 2023. After a very taxing 2022, global equities and bonds should deliver better returns this year, but the ride will be bumpy, consistent with late-cycle conditions. Elevated uncertainty and the likelihood of another bond yield upleg later this year are consistent with our continued overweight of cash in a multi-asset portfolio, and argues against positioning for major absolute gains in either equities or bonds.
We remain underweight bonds in a multi-asset portfolio, and favor investment-grade corporates over high-yield and government bonds. For equities (we are neutral within a multi-asset portfolio), the U.S. market has greater earnings and valuation risks, and we are underweight within a global equity portfolio. The euro area and emerging markets are our preferred picks given better cyclical and valuation conditions.
Finally, we remain underweight commodities, but with an upgrade bias in light of China’s re-opening and an expected weaker U.S. dollar. The latter should depreciate further, but a major breakdown is unlikely. We prefer the euro and an EM basket, and recently upgraded the yen to overweight versus the dollar.