Portfolio Positioning for 2023 - Some Thoughts

We are clearly now in a new macroeconomic regime (see April 2022 Outlook Regime Change Rules the World). The era of low inflation, low interest rates and low macroeconomic volatility is over, for now at least. Recent comments over the past week including likely upgrades to economic forecasts by the IMF only reinforce this view. In this new regime, whilst interest rates will naturally fluctuate, they will not return to zero or ultralow levels. Tighter monetary policy (higher short-term interest rates) is not temporary and the easy monetary era is over. All risk assets valuations will need to adjust to permanently and structurally higher cash rates. In other words they will need to offer sufficiently high risk premia over short-term interest rates to be attractive. Whilst listed (stock market quoted) asset classes have adjusted to a significant extent, many unlisted valuations have yet to reflect this new reality.

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