Investors’ Outlook: Looking at the big picture

Central banks’ actions, inflation, and recession risks have captivated investors’ attention for several months now. And while uncertainties remain, the view ahead seems to be slowly clearing. It’s a good time to take a step back and highlight the bigger picture.

The economic brushes are painting a portrait that looks like it will depict monetary policy tightening has stabilized and tilts towards an easing as we move toward the end of the year, accentuated by declining inflation levels and increasing signs of a recession to come. This has been our expectation all along.

Our puzzle pieces currently form a solid frame, which is why we have made no changes to our asset allocation this time. Overall, we think it’s not the right moment to lean out the window in terms of risk. But in search of returns, emerging markets offer a source of growth which developed markets don’t.

On the gallery wall of geopolitics, risks remain elevated, and yet we feel there’s no way to avoid investing in emerging markets. Even Group of Seven nations, which make up the world’s biggest democratic economies, have softened their tone around Chinese relations, emphasizing de-risking without decoupling from China. That evolution reflects their attempt to strike a more diplomatic approach to a rising China and its importance for global supply chains and the economy.

With all eyes on economic indicators out of China, the world’s growth engine, some investors may be worried about a waning post-pandemic recovery. While the initial spike we saw in the country’s property markets and construction sectors is already softening, we see the longer-term trend tilting upwards as the rebound is driven by consumers. So, while the recovery may not be happening as fast as many had hoped for, and some months may be weaker than others, it’s moving in the right direction and is transitioning into a consumer-driven economy. That’s already been good news for European and US companies, which have tremendous exposure to Chinese consumers.

Speaking of the love of spending, in this edition of our Investors’ Outlook, you can read our assessment of the environment for US consumers and why we see that space weakening and bringing inflation lower with it. We also discuss gold and why the rally still has some room to run, as well as what might be next for the US dollar. This month, our colleagues in the Conviction Equities Boutique examine the story behind Chinese stocks.

We’re not losing sight of the bigger picture. We look at what matters and show you what we see.