Midmonth Chartbook

Global Perspective


December 16, 2022

Global Perspective

Among the many notable events of 2022 is that both bonds (Bloomberg U.S. Aggregate Index) and stocks (S&P500 index) were negative for the year. This makes 2022 only the second year since WWII for the concurrent negative returns - the last time it happened was in1969. 2022 saw three main challenges that continue to pressured global economic activity, namely (1) the Russian invasion of Ukraine, (2) high inflation, which, at least in the U.S. is on the right direction, but still very high (3) a slowdown in China, which could be arrested with the recent changes in zero-COVID policy but may cost millions losing their lives. Despite some positive developments in 2023, we expect that more than a third of the world economy will experience a recession, at least in technical terms (two consecutive quarters of negative GDP growth rates). The U.S., already experienced a technical recession in 2022, with Q1 and Q2 growth rates in negative territory. However, the slowdown in growth did not affect the strong positive momentum in employment, personal income, personal spending, or industrial production. The U.S. economy has the potential to achieve a similar outcome in 2023, where slowing economic activity does not turn into an outright recession with the help of a strong labor market and strong U.S. consumer activity.

Conversely, European economies do not have the same resilience as the U.S. economy. A looming energy crisis, depreciating local currencies, diminishing purchasing power, and political uncertainties could tip European economies into recession. Therefore, we remain significantly underweight the international developed markets.

In China, the swift U-turn of the zero-COVID policy could save economic growth during the second half of 2023. However, the lifted restrictions could mean that millions of people are expected to get COVID with unpredictable consequences.  

We also remain significantly underweight emerging markets assets. The recent recovery in Emerging Market equities and especially in bonds is promising but it does not change the fact that the world economy is slowing down in all regions and corporate earnings, especially in the larger economies of emerging market like China, South Korea, Taiwan and Brazil, remain lackluster and are expected to shrink in 2023.

We wish you happy holidays and a prosperous new year. 

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