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.
Global Macro Outlook Q1 2023: The year ahead
The first half of 2023 could bear witness to a series of sharper—and longer—bouts of market volatility. Thankfully, the picture does brighten slightly in H2, during which these headwinds are likely to moderate, ushering in more conducive conditions for financial markets.
Preferred securities: Attractive entry point ahead of a Fed pivot
When the Fed pivots in its rate hikes policy, we think this would be positive for preferred securities, which have strong rebound potential. The current low level may be an attractive entry point for income seekers.
Long-term structural strengths and resilience of Indian economy to continue despite cyclical challenges
Although significant cyclical challenges will likely persist in India over the short-term, the longer-term story based on deepening formalisation and a growing digital economy and manufacturing base remains intact.
Global Macro Outlook Q3 2023: The long and winding road
At the time of writing, only the eurozone and New Zealand have slipped into recession (as defined by two consecutive quarters of negative growth). But don’t pop the champagne just yet: We see this as a case of recession postponed rather than canceled. Read more.
Asian High Yield Bond Outlook: Building resiliency amid volatility
Although emerging from a difficult period, Asian-high-yield is positioned to weather the current market volatility due to regional economic strength and unique asset class characteristics.
Global Macro Outlook Q2 2023: Navigating turbulence
At this point, we believe it’s crucial to reassess how we should be thinking about the Fed’s approach to policy making, especially in the context of the second biggest bank failure in U.S. history which has raised doubts about the health of the U.S. banking system.
