Insight
The Big Picture: Global Asset Allocation 2023 Q4

We expect the global economy to continue decelerating, while recent asset behaviour is more suggestive of acceleration. Consequently, we remain cautious, expecting a period of consolidation among cyclical assets. Within our Model Asset Allocation we reduce high yield (HY) to Neutral, while adding to government bonds (still Underweight) and introducing bank loans at Overweight. The conservative stance is balanced by maintaining a regional bias towards emerging market (EM) assets.
Model asset allocation
In our view:
- Cash rates are high and offer diversification. We remain at the Maximum allocation.
- Government debt outlook boosted by the recent rise in yields. We add but remain Underweight.
- Bank loans introduced to the Model Asset Allocation. We start with an Overweight stance.
- Corporate investment grade (IG) is attractive and has done well when Fed eases. We remain Overweight.
- Corporate high yield (HY) spreads have narrowed too far. We reduce to Neutral.
- Real estate (REITS) offers better returns than equities. We remain slightly Overweight.
- Equities were boosted by AI fever but we prefer other risky assets. We remain Underweight.
- Gold appears expensive. We remain at zero.
- Commodities are now even more expensive and are cyclical. We remain at zero.
- Regionally, we favour EM assets.
- USD is expensive, JPY is very weak. We partially hedge from USD to JPY.
Our best-in-class assets (based on 12m projected returns)
- EM government bonds
- US bank loans
- Chinese equities