Skip to main content
Back

An unexpected turn of events

6 April 2022

Just as we were looking to return to some semblance of post-pandemic normalcy, the Ukraine conflict and resulting geopolitical stress have further complicated the macro landscape. The extended disruption to global supply chains and surge in commodity prices mean that major central banks now face the near impossible task of tamping down inflation without squeezing real incomes or dampening growth. While we believe that policymakers' concerns over high inflation will ultimately give way to worries about slower growth and that a dovish pivot will likely materialise in Q3, the path there isn't likely to be smooth.

Cross-asset volatility remains elevated: our composite measure of risk aversion indicates a difficult quarter ahead for risk assets. A declining global liquidity impulse is most relevant to emerging-market (EM) growth and earnings, but it also has broader relevance to risk assets.

We think it’s extremely likely that the next global stimulus phase will represent a significant departure from the playbook that investors have been conditioned to seeing since the global financial crisis. Indeed, we’re already seeing revolutionary shifts in the opposite direction. Significant increases in defence spending are being adopted by governments across the world. Meanwhile, many Western banks and businesses are engaging in self-sanctioning, opting to avoid unsanctioned Russian entities out of fear that the official sanctions list might broaden later.

These are profound changes, developments that have significantly accelerated the pace of progress toward an even more fragmented global economy. In fairness, this movement was already in place before the pandemic but has been catalysed by Russia’s invasion of Ukraine. Military conflicts change everything. As politics change, economics will too, and financial markets—as history informs us—will follow.

The strategic investment implications from this macro thesis remain a portfolio biased toward up-in-quality assets, U.S. equities and fixed income over other developed markets, and EM with less room or willingness to monetise deficits (e.g., the eurozone and China). Similarly, the thesis would favour the USD over high-beta fiat currency.

To learn more about the macroeconomic themes for North America, Europe, Asia-Pacific and Latin America, download the full version.

  • A brighter 2024 outlook for U.S. regional banks as rates and deposit costs change course

    With interest rates appearing to have peaked and lenders’ deposit costs easing, 2024 could turn out to be a far more hospitable year for U.S. regional banks than 2023.

    Read more
  • A stable rate environment should be a fillip for Asia REITs

    Asia REITs offer investors a unique income opportunity in the new year as rates have likely peaked with the possibility of declining borrowing costs in 2024.

    Read more
  • Accelerating momentum amid a transitioning macro backdrop

    A changing global rates environment positions Asian Fixed Income to accelerate in 2024 with attractive nominal yields and carry opportunities.

    Read more
See all
  • Asset allocation outlook: proceed with caution

    There were a number of key economic and market themes in flux in 2023, most notably a global economic environment that held up stronger than most market participants predicted. As 2024 gets under way, we look at some of the themes driving our asset allocation outlook.

    read more
  • A brighter 2024 outlook for U.S. regional banks as rates and deposit costs change course

    With interest rates appearing to have peaked and lenders’ deposit costs easing, 2024 could turn out to be a far more hospitable year for U.S. regional banks than 2023.

    read more
  • A stable rate environment should be a fillip for Asia REITs

    Asia REITs offer investors a unique income opportunity in the new year as rates have likely peaked with the possibility of declining borrowing costs in 2024.

    read more
see all

Help us to serve you betterClick here to find out how you can update your Information today!

View more

Help us to serve you betterClick here to find out how you can update your Information today!

View more
Confirm