Insights

Right now, long-dated bonds seem like a freshwater fountain in the desert to income-starved investors. However, the question of whether these bonds can prove their value beyond being a mere opportunistic tactical play heavily depends on this year’s tightrope walk between inflation and growth.

The curtain has closed on 2022 and a new dance looks set to play out in the year to come. Our Multi Asset Boutique experts are waiting in the wings, poised to capture the opportunities arising from any upcoming shifts in the global economy and financial markets. Vontobel’s latest Investors’ Outlook shines a spotlight on key factors to consider in 2023. It’s time for you to take the stage.

The euphoria in the financial markets has been driven by falling expectations of a severe recession. Although our models continue to indicate a US recession, this is likely to begin later in the year. This means there is no contradiction in the equity overweighting that is currently suggested by our model.

Should we blindly follow a machine? Or is human judgment needed to make weighed decisions? We believe that man and machine must act as a team to achieve the best results. That's why we developed the Wave, which is based on a big data approach and serves as a compass in our investment process.

The yield curve and our models point to a high probability of recession. But how severe will the U.S. recession be? To answer this question, we exploit historical data to examine the impact of the tightening cycle on GDP growth. The results show that investors should exercise caution in 2023.

The markets are still unimpressed by the approaching recession. This is the case even though aggressive interest rate rises, an inverse yield curve, the global “contraction” status of the Wave, and the similarities between the current market environment and 1989 as highlighted by our risk model all clearly suggest that 2023 is likely to see economic collateral damage.

As financial markets digest the harsh reality of an inflation-induced rate hiking cycle this year, 2023 is likely to be a period of adjustment to new conditions requiring fresh approaches to asset allocation and portfolio construction. This outlook outlines the essentials that investors should know to reap the potential of profoundly altered markets.

Market participants are eagerly awaiting the Fed meeting in mid-December. How it chooses to tackle inflation will determine the severity of the recession, which our models – especially the Wave and the risk model – are now clearly signaling.

There are two powerful global trends leading to an increased demand for infrastructure: a growing population and improving living standards.