investment insights
Slowing economy, a cautious outlook
Lombard Odier Private Bank
High inflation and sharp monetary tightening are the main challenges for the global economy going into the second half of 2022.
As prices and inflation expectations rise, the Federal Reserve must frontload its interest rate increases, accelerating the pace of monetary tightening.
Can the US economy avoid a severe contraction? We think a mild recession in 2023 is likely.
The situation in Europe is very different, with growth more at risk from the Ukraine conflict and inflation more driven by food and energy price shocks. The European Central Bank’s rate-hiking cycle should be shallower than the Fed’s, with rates peaking around 1.25% in early 2023.
In China, a progressive reopening is underway and authorities are reinforcing their pro-growth policies.
As monetary policies start to lower demand and supply chain disruptions improve in coming months, inflation should start slowing. This should allow central banks to become less aggressive, making more extreme economic outcomes less likely.
Monetary tightening, war in Ukraine, disruptions in China, and political and social instability mean more volatility for markets. We keep a balanced portfolio positioning, and focus on quality assets that can provide solid cash flows.
We maintain a neutral weight in equities, favouring value and quality stocks, and extend our put spread strategies to keep asymmetric return profiles.
In fixed income, we prefer sovereign bonds and investment grade credit, where default and liquidity risks are less of a concern.
To shield our clients’ portfolios from high inflation, we retain our overweight exposure in a basket of diversified commodities, including industrial metals, energy and gold.
While this complex environment requires a prudent portfolio positioning, it is also the time to invest actively, and seize tactical opportunities, especially in sustainability. The energy transition is accelerating, and current volatility offers an opportunity to position portfolios to benefit here in the years ahead.
Important information
This is a marketing communication issued by Bank Lombard Odier & Co Ltd (hereinafter “Lombard Odier”).
It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a marketing communication.
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