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Our latest asset allocation views

Asset class overview

We have an overweight stance to equities, driven by consumer strength, outperformance from corporate earnings, and strong price momentum. Recessionary pressures and unfavorable valuations relative to fixed income, however, are the key risks to this view.

Broad equity

• Easing inflation and a resilient labor market have supported strong consumption in the United States. This asset class is also benefiting from favorable price momentum relative to global equities. In terms of sectors, we have a preference for growth stocks over defensive stocks.
• We’re underweight in non-U.S. assets as a result of ongoing strength in the United States. We believe emerging-market economies and Europe could face headwinds due to Mainland China’s lackluster reopening and its associated impact on global trade.

Regional/sector-specific equity

• We continue to be overweight in Japanese equities. The Bank of Japan's dovish monetary policy relative to the rest of the developed world, a favorable fundamental picture, and a renewed corporate focus on shareholder value are factors that are supportive of the asset class.
• We have an underweight stance to Chinese equities because the economic recovery on the back of Mainland China’s reopening has lost momentum and we expect growth to be subdued for the remainder of the year. Insufficient policy support and further regulatory reform are two key risks that we’ll continue to monitor in this market.
• In our view, emerging Latin American equities present an attractive alternative to emerging Asian equities because they’re largely driven by favorable fundamentals such as valuations and earnings.

Fixed income

• We’re overweight in emerging-market debt, driven by strong foreign exchange reserves, positive sovereign debt trends, and elevated spreads relative to U.S. corporate high yield.
• In light of the weaker-than-expected reopening in Mainland China and an uneven property market recovery, we’ve moved Asian bonds from overweight to neutral.

Private markets

• In our view, elevated interest rates are likely to keep a lid on valuations within the real estate space. The office segment continues to face challenges from decreasing occupancy rates and limited refinancing options.
• Tight credit conditions, amplified by the failure of Silicon Valley Bank, shifted lending from the public markets to private markets with private debt being a beneficiary of asset growth. In relative terms, the private credit space can offer attractive yields amid the high-rate environment.
• Within agriculture, higher production volume is helping buoy crop prices amid elevated production costs, which are expected to decline in 2H 2023.