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Global Asset Allocation Viewpoints

Our experts share perspective on market themes and regional trends, plus insights into current portfolio positioning.

Market Perspective

As of 30 April 2023

  • Slowing economic growth, lingering inflation and declining liquidity keep us cautious, while a still resilient labor market, solid consumer and corporate balance sheets and China reopening remain positives against otherwise negative sentiment.
  • Widening gap in monetary policy likely ahead as the Federal Reserve (Fed) is expected to pause after May, Bank of Canada on hold, while the European Central Bank and Bank of England remain hawkish. Meanwhile increased uncertainty around Bank of Japan persists under new leadership as they evaluate yield curve control policy.
  • Key risks to global markets include a sharp decline in growth, central bank missteps, persistent inflation, liquidity shock, and geopolitical tensions.

Portfolio Positioning

As of 30 April 2023

  • We maintain a cautious stance with an underweight to equities and bonds in favor of cash. Equities remain vulnerable to a slowing economy and weaker earnings backdrop, while central banks’ bias, albeit moderating, toward inflation fighting remains a potential headwind to bonds. Cash offers liquidity in an uncertain environment and still attractive yields.
  • Within equities, we remain overweight areas of the market that offer attractive valuation support including small/mid-cap stocks and emerging markets.
  • Within fixed income, we added to unhedged developed ex-US bonds as well as emerging market local currency bonds given views for a weaker U.S. dollar against narrowing growth and interest rate differentials as the Fed nears its anticipated terminal rate.

Market Themes

As of 30 April 2023

Looking for Direction

While the market narrative is that a recession is inevitable, especially in the U.S., economic data continues to be mixed with seemingly sufficient evidence to support both bulls and bears’ outlook for the markets. Bulls continue to lean on evidence of a still robust labor market, strong consumer and corporate balance sheets, a better-than-expected earnings season, and signs of moderating inflation supporting a pause in central banks’ tightening. Meanwhile bears cite lagging impacts of central bank tightening, regional banking turmoil, contractionary manufacturing data, still high inflation, and a deeply inverted yield curve as top reasons why a deeper recession is coming. While we agree that the data remains mixed, the trend will likely continue to be negative into the back half of the year with employment softening and economic growth contracting. However, at this point it is difficult to gauge the potential depth and duration of the contraction, leaving us broadly cautious as we keep an eye on data, looking for more direction.

Economic Growth Forecasts Indicate a Recession Coming1

As of 31 March 2023

Economic Growth Forecasts Indicate a Recession Coming graph

Data provided is for illustrative and informational purposes only. There is no guarantee that any forecasts made will come to pass. Actual results may vary.
Source: Bloomberg L.P.
1 Real GDP is represented by the GDP US Chained Index (QoQ).

Fissures Forming

Despite slowing economic growth amid an aggressive tightening campaign by the Fed, the labor market has remained resilient, especially with the unemployment rate anchored near 3.5%, but some fissures appear to be forming. Looking below the surface, peaking wage growth, declining job openings, and mixed continuing claims data are telling us that the employment picture may be finally softening. Headlines of recent layoffs also indicate labor market weakness although most of them have been concentrated in the higher-earning technology and financial sectors, while the lower income and service-related jobs market remains tight. This is an unusual trend and a result of the lag in reopening from COVID, that has created a lack of supply in labor as services demand has returned. Despite this still positive undercurrent, we are expecting further softening in the labor market evidenced in our research of staffing companies seeing significant weakness in demand, usually an early sign of pending deterioration. This should be a welcome sign for the Fed as a softening labor market will surely ease wage pressures, and ultimately help on the disinflation front.

Wage Growth Peaking with Still Low Unemployment2

As of 31 March 2023

Wage Growth Peaking with Still Low Unemployment graph

Data provided is for illustrative and informational purposes only. There is no guarantee that any forecasts made will come to pass. Actual results may vary.
Source: Bloomberg L.P.
2 Employment Cost Index is represented by the Bureau of Labor Statistics Employment Cost Civilian Workers Index (YoY%). Unemployment Rate is represented by the US Uemployment Rate Total in Labor Force Seasonally Adjusted.

Regional Backdrop

As of 30 April 2023

  Views Positives Negatives
United States U
  • Consumer spending remains strong
  • Labor market has been resilient
  • Services sector remains robust
  • Yields may have peaked
  • Banking sector concerns impact on credit availability
  • Inflation more persistent than expected
  • Labor supply remains scarce
  • Debt ceiling stand-off creates additional uncertainty
Canada N
  • Monetary tightening may have peaked
  • Equity market valuations are attractive
  • Wage growth has moderated
  • Housing market continues to weaken rapidly
  • Consumer savings balances are fading sharply
  • Commodity price weakness may weigh on corporate profits
Europe U
  • Lower energy costs
  • Fiscal spending is rising
  • Equity valuations remain attractive
  • Manufacturing PMIs are improving
  • Inflation remains elevated, particularly core inflation
  • Monetary policy remains restrictive
  • Geopolitical uncertainty is heightened
United Kingdom N
  • Pressure from gas and oil prices has decreased
  • Manufacturing PMIs are improving
  • Inflation expectations have decreased
  • Inflation remains elevated
  • Fiscal consolidation and tighter financial conditions may weigh
  • House price declines in 2023 appear likely
  • Brexit adjustments continue to weigh on the economy
Japan O
  • Equity valuations remain attractive
  • Uptick in inflation, particularly increase in wages
  • Inflows to the stock market from foreign investors
  • Corporate governance continues to gradually improve
  • Earnings expectations could be revised lower
  • Monetary policy normalization may surprise the market
  • A stronger yen may weigh on the export sector
Australia N
  • Uptick in immigration has kept wage pressures stable
  • Home prices are showing signs of bottoming
  • RBA is likely to lean on the dovish side
  • Consumer spending is at risk with mortgage rates being reset
  • Corporate margins are deteriorating
  • Equity valuations do not reflect recession concerns
Emerging Markets O
  • China re-opening has proven to be faster than expected
  • Economic data is surprising to the upside
  • Equity valuations are attractive relative to the US
  • Chinese regulatory policy more supportive
  • Global trade could weaken with tighter monetary conditions
  • Geopolitical risks remain elevated
  • Credit formation in China remains weak
  • Brazilian politics are becoming less business friendly

O = Overweight
N = Neutral
U = Underweight

Views are informed by the Asset Allocation Committee and Regional Investment Committees (United Kingdom, Europe, Australia, Japan and Asia) and reflect the equity market.

Asset Allocation Committee Positioning

As of 30 April 2023

Asset Allocation Committee Positioning table

1 For pairwise decisions in style & market capitalization, positioning within boxes represent positioning in the first mentioned asset class relative to the second asset class.
The asset classes across the equity and fixed income markets shown are represented in our Multi-Asset portfolios. Certain style & market capitalization asset classes arerepresented as pairwise decisions as part of our tactical asset allocation framework.

Additional Disclosures:

Certain numbers in this report may not equal stated totals due to rounding.
Source: Unless otherwise stated, all market data are sourced from FactSet. Financial data and analytics provider FactSet. Copyright 2023 FactSet. All Rights Reserved.
Source: MSCI. MSCI and its affiliates and third party sources and providers (collectively, “MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

Key risks –The following risks are materially relevant to the information highlighted in this material:
Even if the asset allocation is exposed to different asset classes in order to diversify the risks, a part of these assets is exposed to specific key risks.
Equity risk – in general, equities involve higher risks than bonds or money market instruments.
ESG and Sustainability risk – May result in a material negative impact on the value of an investment and performance of the portfolio.
Credit risk – a bond or money market security could lose value if the issuer’s financial health deteriorates.
Currency risk – changes in currency exchange rates could reduce investment gains or increase investment losses.
Default risk – the issuers of certain bonds could become unable to make payments on their bonds.
Emerging markets risk – emerging markets are less established than developed markets and, therefore, involve higher risks.
Foreign investing risk – investing in foreign countries other than the country of domicile can be riskier due to the adverse effects of currency exchange rates; differences in market structure and liquidity, as well as specific country, regional, and economic developments.
Interest rate risk – when interest rates rise, bond values generally fall. This risk is generally greater the longer the maturity of a bond investment and the higher its credit quality.
Real estate investments risk – real estate and related investments can be hurt by any factor that makes an area or individual property less valuable.
Small- and mid-cap risk – stocks of small and mid-size companies can be more volatile than stocks of larger companies.
Style risk – different investment styles typically go in and out of favour depending on market conditions and investor sentiment.


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