Reviews & outlooks

Markets experienced a setback in August 2023 as rate expectations for 2024 and 2025 rose, driven by reduced recession risks and inflation worries from fiscal stimulus and debt. Concerns about contagion from Chinese real estate developers in the banking system seem exaggerated. Our models remain constructive on equities.

For now the much-feared recession has been staved off thanks to a resilient consumer. However, the risk is not off the table yet which has prompted our models to take a small step back from maximum equity allocations. While they stay optimistic, they have now started to treat the asset class with a grain of salt while bonds don’t seem to be able to find their way out of the dog’s house.

Luc D’hooge and Wouter Van Overfelt review the developments of the Vontobel Fund – Emerging Markets Debt and Vontobel Fund – Emerging Markets Corporate Bond and share their forecast for the remainder of 2023.

Nothing seems to be able to derail equities on their way up, despite risk factors such as the US debt ceiling or the surprisingly hawkish Fed communiqué in June. A major reason for the calm is the continuously surprising resilience of the consumer, which still argues for an equity overweight.

Markets keep ignoring the economic deterioration in the US, as first cracks in the US banking system increase the likelihood of a Fed pivot over the upcoming months. At the same time Chinese recovery boosts the growth outlook for the APAC region. While growth perspectives and sentiment seem to diverge, our models stick to their equity overweight.

Wouter Van Overfelt, Head of Emerging Market Corporates and Luc D’hooge, Head of Emerging Markets Bonds, provide a review on the developments in the first quarter, the current positioning of the strategies as well as an outlook for the remainder of 2023.

This month we asked ChatGPT for its investment outlook. Aside from fancy language we didn’t get much out of it. Conversely, our models reveal a continued equity overweight and a slightly more constructive view on bonds as investors hope for Fed pivot.

The tightening cycle has started to bite by taking down three US lenders and sending jitters through the banking sector as a whole. While swift Fed action convinced our models to quickly reject 2007/08 comparisons, a true Fed pivot might be needed to support market sentiment further down the line.

The strong US labor market report has shifted recession risks towards the end of the year. This may have opened the door for a grace period, in which uncertainty around the economic impact of recent policy tightening makes it impossible to refute the arguments of either camp: bulls and bears. This article shows how our models are dealing with this kind of uncertainty.