2023 Global Investment Outlook

2022 was more than a collection of adverse events, combining to depress all major asset classes. It was a transition from an era of low inflation, abundant liquidity, and happy globalization to a more complex and unstable one. As unpredictability has become the norm for 2023 and beyond, portfolios must adapt to a new landscape of risks, and opportunities.

Meet the Team

The Big Picture/Outlook for 2023

Realism and preparation are paramount for 2023.

Unpredictability means risk, but investment is all about calculated risks. We expect positive returns in 2023, with income from developed markets and capital appreciation from emerging regions.

Our theme for 2022 was “Low Visibility Ahead”. This was right, and unfortunately remains true in 2023. The era of quick crises followed by quick fixes from well aligned governments and central banks is over. The new landscape is a slow-moving shock, with higher inflation and more economic instability

There are responses to this secular shift: we have reshuffled our long-term strategic asset allocation, with higher expected returns, from different sources. The year ahead is not all adverse either. We expect a slower pace of monetary tightening and an overall resilient global economy. We start the year fully invested but use developed and emerging markets for different purposes. Safe income from quality sources in the former, and capital appreciation from stocks in the latter. Crucially, we expect episodes of volatility and are prepared to adapt quickly to an ever changing opportunity set.

Maurice Gravier

Chief Investment Officer

Global Economy

Global slowdown, but the GCC stands out.

The GCC is well positioned to withstand the expected slowdown in global growth this year, cushioned to some extent by high oil prices and robust public sector investment, particularly in Saudi Arabia.

The global economy is likely to see much slower growth this year as the aggressive monetary policy tightening of 2022 starts to bite. However, we expect energy prices to remain elevated, with Brent oil averaging over $100 in 2023, as supply remains constrained and there is limited capacity to increase production within OPEC+. A faster than expected reopening of China’s economy could lead to stronger demand for oil and other commodities in H2 2023.

The budgets of major GCC oil producers are likely to remain in surplus this year, allowing governments to push ahead with significant investment in infrastructure and strategic sectors. This will help to mitigate the impact of weaker external demand and slowing private sector consumption and investment. Consequently, the GCC is likely to be a relative outperformer in terms of growth this year.

Khatija Haque

Chief Economist and Head of Research

Equity Strategy

Quality dividends in developed markets and growth from emerging markets.

The focus shifts from watching inflation and rates to earnings and margins. Higher returns expected from emerging markets on lower valuation and higher earnings growth Selectivity rather than direction: Quality Dividend payers recommended in developed markets. The most important driver for the direction of global equity performance in 2023 will be earnings trajectory, itself a function of rates (hence the Central Bank pivot’s importance). Corporate Margins stabilizing (from falling) are the cue for a sustainable rebound for equities. Corporate profits are being impacted by higher wages, transportation and interest costs, labour shortage, disruptions in the supply of components. Corporates can no longer pass on higher costs to consumers. Perspectives, and valuations, fare better in emerging markets.

Anita Gupta

Head of Equity Strategy

Fixed Income

And the Central Banks said, let there be Yield.

Last year's unprecedented rate hikes resulted in misery for investors. But a silver lining has been the availability of attractive yields in the highest quality instruments in 2023. The steepest pace of rate hikes in decades combined with the start of quantitative tightening meant the era of "Central Bank Puts" is over. However, as the proverb goes, the bright side is the availability of plenty of yield in the highest quality of bonds. A caveat is unpredictable growth and inflation scenario. We believe Developed Market Treasuries are a must in every fixed-income portfolio to guard against volatility.

While looking at credit through our 3-lens framework of macro drivers, supply-demand technical, and valuations, Investment Credit tops the charts. Long duration in IG credit helps lock in high yield for longer tenures, with financials offering unparalleled value. We advise caution in Emerging Market Debt and High Yield credit as slowdown fears gain further ground to round up our views.

Satyajit Singh

Head of Fixed Income Strategy

Asset Allocation

Adapting our Strategic Asset Allocation.

Nothing is for more disconcerting than a paradigm change, and the decade ahead offers many reasons for one. The good news is that we expect better returns ahead, yet they will be harder to come by.

The year 2022 represents a transition from a period of moderate growth and inflation to one of higher macroeconomic and geopolitical uncertainty. The full does not seem to have run its course yet, and the traditional 60-40 equity-bond portfolio is unlikely to be the best option.

Investors will have to rely on more complex portfolios to improve resiliency. They should invest in income-generating assets, where the risk of capital loss is lower and partially offset by larger coupons, and in absolute return strategies, i.e., hedge funds, more decorrelated with the direction of the broader markets and offering the promise of alpha generation.

Giorgio Borelli

Head of Asset Allocation and Quantitative Strategies

Global Investment Outlook 2023

Adapting to Unpredictability

Meet the Team

Maurice Gravier

Khatija Haque

Anita Gupta

Satyajit Singh

Giorgio Borelli

The Big Picture/Outlook for 2023

Global Economy

Equity Strategy

Fixed Income

Asset Allocation

How was your experience?