Insight

The Big Picture: Global Asset Allocation 2023 Q3

The Big Picture: Global Asset Allocation 2023 Q3

Our economic cycle analysis points to contraction, which favours caution.  However, we think the economic rebound will come within our 12-month horizon, leading us to add a bit of risk to the Model Asset Allocation.  We reduce government bonds to Underweight, while increasing investment grade (IG) to further Overweight and real estate (REITs) to Overweight.  The “riskiness” of the Model Asset Allocation is enhanced by maintaining a bias towards emerging market (EM) assets.  We introduce a partial hedge from US dollar into Japanese yen. 

Model asset allocation 

In our view: 

  • Cash rates are higher and offer diversification. We remain at the Maximum allocation.
  • Government debt outlook dimmed by the recent fall in yields. We reduce to Underweight.
  • Corporate investment-grade (IG) yields attractive but spreads may widen further. We go more Overweight.
  • Corporate high-yield (HY) attractive despite risk of wider spreads/higher defaults. We remain Overweight.
  • Real estate (REITS) offers the best returns but with risk. We increase to Overweight.
  • Equities are handicapped by falling profits and we prefer other risky assets. We remain Underweight.
  • Gold has been strong and now appears expensive. We remain at zero.
  • Commodities are expensive and cyclical. We remain at zero.
  • Regionally, we favour EM assets.
  • We partially hedge from USD to JPY to capture valuation discrepancy

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

  • EM IG
  • US real estate
  • Chinese equities
  • GBP cash

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