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Investment expertise

Monthly Investment Outlook

Monthly Investment Outlook

We publish a Monthly Investment Outlook that highlights our convictions on equities and bonds, as well as recent asset allocation changes.


Summary

  • MONTHLY INVESTMENT OUTLOOK - The end of an era
  • GLOBAL TACTICAL ASSET ALLOCATION - Remaining cautious
  • UBP ECONOMIC OUTLOOK - Is a global recession inevitable?
  • UBP ECONOMIC OUTLOOK - Will the new monetary regime break up the cycle?
  • GLOBAL BONDS - Looking for opportunities in high grade credit
  • GLOBAL EQUITIES - Darkening outlook for corporate profitability
  • RECENT CHANGES - Adding government bonds
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  • With the September swoon in risk assets, markets have simply moved to unprice the optimism built up over the summer about the prospects of a pause in Fed tightening and a soft-landing in the US economy.
  • Instead, with two hawkish communications – first at the Jackson Hole conference in late-August then again following the September FOMC – Fed Chair Jerome Powell has signalled a durable end to the negative real interest rate regime in place since the mid-2000s.
  • Markets have begun to price this potential shift in policy with a sharp rise in bond yields (again) in September with shorterduration bonds repricing the prospect of higher short-term rates more meaningfully.
  • With 10-year yields having moved decisively into our 3.5- 4.0% target range, even assuming further, aggressive Fed rate hikes ahead, yield curve inversion should mean riskreward for investors taking on more duration risk is becoming increasingly balanced. Signs of a stabilisation/decline in core inflation would be helpful to tilt risk-reward more meaningfully in favour of bond investors.
  • Credit spreads, unlike equities, have yet to fully retrace the optimism priced into markets over the summer. Earnings downgrades and deteriorating credit quality should be the next catalysts to wider spreads ahead. Admittedly, absolute yields are looking increasingly attractive, with USD investment grade yields reaching 5.5% and high yield bonds approaching the 10% yield levels seen at the height of the Euro crisis (2012), high yield energy crisis (2015/16), and the global pandemic (2020).
  • In equities, the start of earnings season in mid-October will be the key driver to the next leg for equity markets. Earnings revisions have been trending lower consistently since early-July. We expect these downgrades to accelerate moving into year-end. Valuations have begun to reprice the higher yields, though remain short of the levels seen as markets skirted recession in 2014 & 2019.
  • Increased instability is emerging as anticipated via the FX markets with the British pound now joining the Japanese yen as weakening sharply in September amidst its new government and an aggressive fiscal programme ahead.
  • With the Chinese yuan also showing signs of weakening, caution remains warranted with alternative hedge fund strategies and structured product strategies key elements of our risk management strategy going forward.
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