Most advanced economies appear to be moving towards slower growth and inflation: The US economy is seeing this already; Europe, by contrast, is expected to experience slower growth and higher inflation in 2023. China is forecast to have higher growth and higher inflation next year.
- Multi-asset portfolios benefited from an upturn in risk appetite – in particular via our long positions in US and Chinese equities and European investment-grade (IG) corporate bonds. Risk premia remain attractive in the US and China, in sharp contrast to Europe where more caution is warranted given the generally still optimistic earnings expectations.
- The low valuation of small caps relative to large caps reflects the negative forward EPS estimates for many small caps. Looking at price-to-book or price-to-sales ratios, the small-cap discount is not so large. On sectors, the cheapest area is financials.
- Earnings in emerging markets, and emerging Asia in particular, have outpaced developed markets. Chinese equities are trading at the lower end of their historical price-to-book ranges, but putting the ‘right’ risk premium on segments can be tricky.
- Fixed income risk premia have been slightly above those on equities for the first time since 2008. Our fixed-income team favours curve steepeners, European IG, and US mortgage-backed securities on both fundamental and valuation grounds. We regard the risks of a significant US dollar correction as reasonably high. This would benefit emerging markets (EM) debt.
Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.
Environmental, social and governance (ESG) investment risk: The lack of common or harmonised definitions and labels integrating ESG and sustainability criteria at EU level may result in different approaches by managers when setting ESG objectives. This also means that it may be difficult to compare strategies integrating ESG and sustainability criteria to the extent that the selection and weightings applied to select investments may be based on metrics that may share the same name but have different underlying meanings. In evaluating a security based on the ESG and sustainability criteria, the Investment Manager may also use data sources provided by external ESG research providers. Given the evolving nature of ESG, these data sources may for the time being be incomplete, inaccurate or unavailable. Applying responsible business conduct standards in the investment process may lead to the exclusion of securities of certain issuers. Consequently, (the Sub-Fund’s) performance may at times be better or worse than the performance of relatable funds that do not apply such standards.