A new market cycle

A new market cycle

Investment Focus
How our worldview is changing
The West is slowing with bouts of financial instability, while the East is accelerating. Market volatility resurfaces every now and then and a shallow recession is still likely in the US. China and Japan have more room to continue to rebound. Contrary to our initial expectations, the Eurozone and UK appear to have avoided an outright recession due to receding energy risks. This limits any market expectation for interest rate cuts in developed markets, which we think are more likely in 2024.

The global economy
A continuation of 2023’s three major shifts: peaks, pauses and pickups
At the beginning of the 2023 we were expecting three major shifts, which have come to fruition to some extent, and we expect to continue for the rest of the year:
Inflation peaks
Inflation peaks

Inflation begins to ease in the US and, with a lag, in the Eurozone and the UK, where it’s still elevated but will likely moderate.

Central banks pause
Central banks pause

The US Federal Reserve’s latest rate increase was, in our opinion, likely their last of the year. We believe the European Central Bank and the Bank of England will follow suit but later in the year as they continue to battle elevated inflation. We don’t expect rate cuts in 2023.

China’s economy picks up
China’s economy picks up

In the absence of inflationary pressures, China has room to continue to implement stimulative policy measures to support its economy.

Central banks pause monetary policy tightening as inflation slows but stays above target.

Central Bank Policy Rates

Source: In-house research, Refinitiv; note: dotted line = Elbin Capital & Insurance forecast.

China’s economic #pick-up looks set to continue

China Purchasing Managers Index

Source: In-house research, Refinitiv.


High-quality bonds and defensive equities are attractive in a volatile late-cycle environment
As interest rates peak, growth slows and inflation eases, high-quality bond markets look attractive as history has shown they tend to outperform equities in these conditions. Even now, the risk-reward for equities is poor relative to high-quality bonds – a 6-month Treasury bill is currently yielding more than the S&P 500.

The late-cycle volatility we expect limits upsides in equity performance, and we therefore do not believe it is time to re-risk portfolios yet. Thus, low-volatility equities are more attractive as they mitigate downside risks while partially capturing the upside. In addition, as inflation is not an issue in Asia, and China’s re-opening continues, Asia-Pacific equities including Japan are also attractively valued.

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