A just-published report updated our absolute return portfolio, which remains positioned for risk-on from a tactical perspective.
Investors are still generally confused about where we are in the economic and investment cycles. This confusion thus provides various investment opportunities, which was the focus of the report. Specifically, we do not foresee the global economy entering a recession in 2023: last year was merely a late-cycle slowdown that is now subsiding. Although DM policy rates have increased significantly in the past year, overall monetary conditions are not restrictive and many of last year’s non-monetary economic headwinds have diminished of late.
The global economic cycle remains at a mature phase and investors have recently been making a mistake by piling into early-cycle stocks. We remain focused on cyclical stocks that offer relative valuation cushions and better earnings upside, including euro area and emerging Asian markets, as well as U.S. and euro area financials and industrials.
Likewise, bond investors are still too complacent: although the Fed and other central banks may soon pause their tightening campaigns, further rate hikes rather than cuts will be required before the cycle ends.