Insight

The Big Picture - Global Asset Allocation 2023 Outlook

The Big Picture: 2023 Outlook

Given our view that 2023 will be a year of transition from a contraction regime to one of recovery, we reduce the defensiveness of our Model Asset Allocation, while keeping some powder dry for when recovery is confirmed. We are reducing the government bond allocation to Neutral, while increasing the allocation to high yield (to Overweight). We also reduce the cash allocation to zero, replacing it as diversifier of choice with an Overweight allocation to gold. From a regional perspective EM and US are preferred.

Model asset allocation

In our view:

  • Real estate (REITS) has the potential to produce the best returns. We remain Overweight.
  • Equities offer decent potential but not on a risk-adjusted basis. We remain Underweight.
  • Corporate high yield (HY) is now more attractive and does well in recoveries. We increase to Overweight.
  • Corporate investment grade (IG) has an attractive risk-reward trade-off. We remain Overweight.
  • Government debt less favoured as we transition from contraction to recovery. We reduce to Neutral.
  • Cash returns better than for some time but we think there are better options. We reduce to zero.
  • Commodities could be helped by weakening dollar but some are expensive. We remain at Zero.
  • Gold may be helped by falling long yields and a weakening dollar. We increase to Overweight.
  • Regionally, we favour the EM and US (a barbell approach).
  • US dollar expected to weaken but we do not hedge.

Our best-in-class assets (based on 12m projected returns in local currency)

  • Japan equities
  • EM real estate
  • US HY
  • Gold

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