UBP House View - December 2023

Key takeaways

1. Global economy: Recession risks are waning in the US and Europe as targeted fiscal stimulus packages stay in place. Inflation should continue to ease towards its target by end-2023. Central banks should stay on the sidelines in H1 24, but rate cuts are more likely in H2 24.
2. Cash vs. fixed-income strategy: Investors should move from cash to fixed income in order to lock in current attractive yields. We are targeting yields of 2–2.5% on German 10-year Bunds and 4.5% on US 10-year Treasury bonds.
3. Our favourite bets on equities: Equities remain our core holdings with preferences for technology and Japan. In 2024, Japan is offering premium, secular earnings growth over European and EM equities. Look to software for earnings growth and attractive valuations. For more cautious investors, rising volatility offers opportunities to generate equity-like returns via volatility strategies.

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Editorial

2023 will undoubtedly be seen as a year full of surprises.

Despite all the negative forecasts after 2022, which was a bleak year, risk assets have delivered good-quality returns across most asset classes.

This good performance is, of course, reflected in US and Japanese equities, but also in certain bond segments, with high-yield bonds having risen nearly 9% since the beginning of the year. Of course, dispersion within asset classes is the order of the day, but it shows that cash was not the only investment solution to obtain largely positive returns in 2023. These comments also apply to diversified management, as balanced portfolios provide highly satisfactory performances.

Excessive caution would therefore have been rather penalising at this stage. It would also have failed to recover the lion’s share of the losses recorded in 2022. The good news is that markets now offer a wide range of solutions that will need to be implemented intelligently and in an agile way in 2024. This situation leaves us confident about the coming months, despite the low visibility on macroeconomic data, which is expected to improve in the first part of the year.

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