Global Asset Allocation Views – June 2023

(SUW – strong underweight, UW – underweight, N – Neutral, OW-overweight, SOW – strong overweight)

 Equities  n  Economic data are mixed, inflation rates are trending down, and central bank rate hikes are close to the end. However, valuations, especially in the US, are not cheap compared to fixed income assets. Tight monetary policies and recession fears still present headwinds. 
Asset ClassBonds n   Elevated inflation rates, though declining, are potential risks to bonds.
 Real Assetsn    Declining inflation and slowing economic growth (potential recession) decrease the demand for commodities and real assets.
 Cash    nCash offers attractive yields, low duration, and a good place for liquidity.
 U.S.  n  Despite the resilient labor market and consumer spendings, manufacturing and housing sectors have shown weakness. Valuation is still expensive compared to historical average. AI-induced tech rally offers tailwinds.
 International Markets (DM)   n Valuations are attractive compared to the US. Currencies may appreciate as the US dollar has peaked.
Regions and StylesEmerging Markets (EM)   n Valuations are attractive relative to the US. Local currencies may appreciate further against the USD. China may adopt new stimulus measures as its economic recovery stalled.
 U.S. Growth vs. Value n   Value stocks are cheap compared to historical average and slowing economic growth and higher interest rates also makes the growth stock unattractive. However, the AI boom may offer tailwind to tech sectors.
 U.S. Small vs. Large-Cap    nSmall caps offer the cheapest valuation in decades. High quality small cap stocks should provide tremendous upside potential.
 Real Asset Equitiesn    Declining inflation and economic growth concerns should put pressure on commodity prices. Higher interest rates and reduced demands for office space are unfavorable for commercial real estate.
 U.S. Investment Grade n   Corporate balance sheets remain solid, but the elevated inflation rate may last longer, and the FED may keep interest rates high longer than expected.
 International Bonds n   International bond yields stay volatile as central banks continue hiking rates to combat inflation.
 U.S. Long-Term Treasury n   Elevated inflation may last longer than what most investors had expected.
BondsInflation-Linked n   Declining inflation rates may make TIPs unattractive.
 High Yield   n Credit fundamentals remain supportive, and spreads are around historical average.
 Floating Rate and Bank Loans   n Spreads are attractive and short-term rates are high.
 EM Bonds (USD)   n Yields are still attractive and EM country fundamentals remain solid.


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