6 April 2022
Just as we were looking to return to some semblance of post-pandemic normalcy, the Ukraine conflict and resulting geopolitical stress have further complicated the macro landscape. The extended disruption to global supply chains and surge in commodity prices mean that major central banks now face the near impossible task of tamping down inflation without squeezing real incomes or dampening growth. While we believe that policymakers' concerns over high inflation will ultimately give way to worries about slower growth and that a dovish pivot will likely materialise in Q3, the path there isn't likely to be smooth.
Cross-asset volatility remains elevated: our composite measure of risk aversion indicates a difficult quarter ahead for risk assets. A declining global liquidity impulse is most relevant to emerging-market (EM) growth and earnings, but it also has broader relevance to risk assets.
We think it’s extremely likely that the next global stimulus phase will represent a significant departure from the playbook that investors have been conditioned to seeing since the global financial crisis. Indeed, we’re already seeing revolutionary shifts in the opposite direction. Significant increases in defence spending are being adopted by governments across the world. Meanwhile, many Western banks and businesses are engaging in self-sanctioning, opting to avoid unsanctioned Russian entities out of fear that the official sanctions list might broaden later.
These are profound changes, developments that have significantly accelerated the pace of progress toward an even more fragmented global economy. In fairness, this movement was already in place before the pandemic but has been catalysed by Russia’s invasion of Ukraine. Military conflicts change everything. As politics change, economics will too, and financial markets—as history informs us—will follow.
The strategic investment implications from this macro thesis remain a portfolio biased toward up-in-quality assets, U.S. equities and fixed income over other developed markets, and EM with less room or willingness to monetise deficits (e.g., the eurozone and China). Similarly, the thesis would favour the USD over high-beta fiat currency.
To learn more about the macroeconomic themes for North America, Europe, Asia-Pacific and Latin America, download the full version.
Update on global healthcare sectorRead more
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Global Macro Outlook Q3 2022: Navigating the gathering storm
Find out how shifts in the macro backdrop could affect the global economy in the third quarter and where resilience can be found.
Transitioning to India’s next stage of growth
India’s growth agenda is well embedding the primary driver of digitisation that supports the formalisation and reinvestment policies underpinning manufacturing expansion. This is starting to show results with visibly improved capital expenditure and industrial order books, as well as a narrowing current-account deficit and a healthier inflationary picture.
Bank of Japan tweaks its yield curve control policy: market implications
The Bank of Japan’s recent decision to fine-tune its yield curve control policy may have caught investors off guard; however, the bigger surprise could be that the adjustment was less hawkish than expected.
Q&A with the Portfolio Manager: Global Healthcare Equities
COVID-19 is largely behind us in terms of a global health crisis and a hard hit to global financial markets. Yet, amid a widely predicted economic recession, the world is adjusting to the post-pandemic era. In this Q&A, we highlight how our Global Healthcare Team adopts a differentiated approach by triangulating its investment thesis and quantifying key inputs into the investment framework.
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