Financial markets have been surprisingly resilient this year, despite stubborn inflation, further rate hikes and bank failures. As we move into the second half of 2023, the impact of higher interest rates and the uncertain economic backdrop are likely to remain key concerns for investors. In the Investment Perspectives mid-year outlook, we assess the main factors driving the equities, fixed income and private markets, and highlight the potential opportunities for selective, diversified investors.
The views expressed in this document should not be taken as a recommendation, advice or forecast.
Fabiana Fedeli, Chief Investment Officer, Equities, Multi Asset and Sustainability, believes markets will remain preoccupied with ongoing central bank decisions and the likelihood, timing and depth of a recession. For Fabiana, the market remains one where selection is the main driver of alpha, diversification is key and volatility has to necessarily become our friend. She currently sees compelling opportunities in Japan for active, engaged investors, due to a culture of self-help and corporate reform, as well as selective opportunities in China.
Fabiana Fedeli, CIO Equities, Multi Asset and Sustainability
Jim Leaviss, Chief Investment Officer, Public Fixed Income, believes that there is a lot of value in bond markets currently. In his view, bond investors are being well paid to take both interest rate and credit risk. Jim thinks inflation is likely to remain the key driver of returns and although core inflation remains elevated, he feels we could be past the worst and this will allow central banks to bring the current rate hiking cycle to an end. However, Jim warns that the rapid rate rises we have seen could cause an economic slowdown. Within core government bond markets, Jim favours US Treasuries. He also sees attractively valued opportunities among emerging market bonds.
Jim Leaviss, CIO, Public Fixed Income
Private markets, just like public markets, face challenges from the new investment landscape. Investors will clearly need to consider the impact of higher funding costs on deals and investment returns. However, we remain confident that the outlook for private market investing is positive, with investors attracted by a combination of high yielding (often floating rate or inflation-linked) assets and growth opportunities. Long-term trends such as the broadening and democratisation of the investor base and growing interest in sustainability and impact investing also represent exciting opportunities for private assets, in our view.
In the report, we examine in more detail the trends and opportunities in the private credit, real assets and real estate markets.
In this video, Fabiana Fedeli, CIO Equities, Multi Asset and Sustainability, and Jim Leaviss, CIO Public Fixed Income, discuss finding value in bond markets, stockpicking in an uncertain macro environment and the potential for big surprises in Japan.