Quantitative Investments

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.

In late 2022, financial markets are in the middle of a structural break. This may precipitate a regime change that will alter essential market risk-return features: low inflation, low volatility, and low correlations. This paper tells you why and how investment solutions must adapt to new conditions to continue delivering attractive investment outcomes.

The bear market has not yet reached its end. Meanwhile, concerns are also rising that economic stagflation - an economic situation in which stagnant growth is accompanied by inflation - could develop. This view is shared not only by our proprietary business cycle model, whose contraction signals are strengthening, but also by the continuously rising credit spread, which has reached levels of past recessions this month.

The business cycle can be a key determinant of asset market returns and the relative performance of different asset classes. In practice, however, market timing is very difficult. That is why we have developed our proprietary business cycle model Wave, which can be used to forecast business cycle phases and anticipate economic turning points. It turns out that Wave has the potential to generate higher stock market returns when used for tactical asset allocation.

The 20th Party Congress of the Chinese Communist Party is likely to make Xi Jinping the most powerful leader since Mao Zedong. Sven Schubert, Senior Investment Strategist at Vontobel discusses what the congress has in store and whether it marks the beginning of a new political and economic cycle.

As central banks keep tightening and major economies contract around the globe, a recession seems inevitable and chances at a swift recovery are dwindling. But will we see a mild or a deep recession?

Our models are signaling that not only the economy but also the risk environment is deteriorating further. Possible further interest rate hikes are weighing on both equity and bond markets, with no relief in sight at present.

Our models signal that we are still in troubled waters. Moreover, the data do not yet give the green light for a sustained economic recovery. The bear market therefore still has room to run.

Soaring Eurozone inflation is forcing the ECB's hand whilst economic conditions would still warrant a more accommodative stance. The expected 75 bps rate increases by the end of the year are meant to remove monetary policy from the mix of factors fueling inflation which, however, is likely to make further inroads into the economy as supply-side pressures persist.

In emerging markets much seems to have been priced in already which means we could already be past the trough with a silver lining emerging on the horizon for medium to long-term investors looking to make use of attractive entry points.