Economy

Prefer government bonds over stocks, defensive sectors over cyclicals, and large caps over small caps. Favor North America over other markets. Favor emerging markets like Southeast Asia and Latin America over Greater China, Turkey, and emerging Europe. Stick with aerospace/defense stocks.

Prefer government bonds over stocks, defensive sectors over cyclicals, and large caps over small caps. Favor North America over other markets. Favor emerging markets like Southeast Asia and Latin America over Greater China, Turkey, and emerging Europe. Stick with aerospace/defense stocks.

In this report, we discuss our most important investment themes for global fixed income markets in 2023, and present our main investment recommendations based on those themes. Our broad conclusion: an environment of slowing global inflation, much weaker global growth and less hawkish central banks will be positive for global government bond returns, but problematic for growth-focused spread products like corporate bonds.

In this <i>Strategy Outlook</i>, we present the major investment themes and views we see playing out next year and beyond.

For the first time in decades, the Fed is raising rates while the US Leading Economic Indicator has fallen into contractionary territory and the global manufacturing PMI’s new orders sub-index has dropped below 50. Hence, the outlook for global stocks is currently poor. However, the underperformance of EM equities versus the US is in a late stage. We are putting EM stocks on an upgrade watch list and recommend buying EM domestic bonds opportunistically.