Headwinds to wane mid-2023 but near-term risks remain
This could be dividends from equities or coupons paid on bonds, or even via derivative implementation strategies with minimum complexity
Daily TribuneThis could be dividends from equities or coupons paid on bonds, or even via derivative implementation strategies with minimum complexity
HONG KONG/SINGAPORE — 2022 has been a year filled with challenges for many investors. The Russia-Ukraine issue, lingering pandemic-related disruptions, the highest inflation in several decades, a broad-based and sharper-than-expected slowdown, a cost -of-living crisis and the fastest pace of Fed tightening in decades are key factors that impacted equity and debt markets.
Looking ahead, the aggressive pace of tightening and associated lagged effects are expected to drive a synchronized global growth downturn through 2023.
Overall, most advanced and interest-rate -sensitive economies will experience recessions in the first half, while Asia may see a slow-motion recovery due to a fuller economic reopening in mainland China, Hong Kong SAR, Japan and the Taiwan market.
Improving sentiment with a bias towards more defensive assets near term is likely to bring about continued outperformance of investment -grade bonds and a noticeable rebound for high -yield assets.
Sue Trinh, Co-Head of Global Macro Strategy, Manulife Investment Management, said, "Amid a macro backdrop characterized by elevated global inflation, uncertainty over when Fed rates might peak and rising odds of a global recession, the first half of 2023 could bear witness to a series of sharper and longer bouts of market volatility."
"Thankfully," she said, "the picture does brighten slightly in the second half, during which these headwinds are likely to moderate, ushering in more conducive conditions for financial markets."
"Our base case is that the looming negative demand shock would be sufficient to see growth concerns overtake worries of inflation, and that could pave way for the Fed to take a dovish pivot and potentially ease rates during the fourth quarter of 2023. The main risks to our base case are around the timing of the stagflation trough, China's full reopening and the USD's peak," Trinh added.
Diversifying into natural-yielding exposures in a mixed market outlook
With multiple challenges ahead, Paul Kalogirou, Head of Client Portfolio Management, Asia & Global Multi-Asset Solutions, Client Portfolio Manager, Manulife Investment Management explained how a global and flexible investment approach that dynamically shifts between asset classes during market volatility can help stabilize a portfolio's income stream.
"Income-oriented strategies typically have defensive attributes and are particularly relevant in challenging growth outlook environments such as the one we are in. A portfolio with a reasonably high natural yield in relation to its overall payout can help investors generate a stable income from the underlying investments," he said.
"This could be dividends from equities or coupons paid on bonds, or even via derivative implementation strategies with minimum complexity. Natural yields can be an attractive investment tool, especially during a negative market environment while being less reliant on the continued outperformance of growth assets. If the underlying natural yield of a portfolio is sustainable, it gives investors' capital a longer-term investment horizon to grow and possibly ride through any downturn," Kalogirou explained.
