UOB House View 3Q 2023


We still expect the lagged effects of US monetary policy tightening and tighter financial/credit conditions to meaningfully slow the US economy but the downturn is now being deferred to 2H 2023, instead of mid-2023, without an outright GDP contraction. There is divergence in monetary policy as Developed Market (DM) are more data-dependent and continuing with their rate hikes, such as Fed, ECB, BOE and RBA while majority of Asian central banks have signaled an end to rate hikes.



From an asset allocation point of view, we advocate the following: 1) a two-pronged approach into growth (technology) and defensives (e.g., telcos, utilities, healthcare, consumer staples) as a slowdown looms, 2) the investment-grade space remains attractive, and investors should take the opportunity to lock in the strong yields after a huge selloff in 2022, and 3) exposure to alternative assets such as selected hedge funds and private markets to reduce correlation risk.



Beyond any near-term market correction, we reiterate our focus on selected opportunities in stocks within defensive sectors (e.g., Healthcare) as well as quality large-cap and growth names. Overall, we remain Neutral on US equities, stay Underweight on European equities, stay Overweight on Japan’s equities and downgrade EM Asia equities to Neutral from Overweight.



For Developed Markets (DM), with the view to increase credit quality while extending duration, we remain Overweight on DM USD Investment Grade (IG). Given an anticipated rise in default rates, amid growth slowdown we stay Underweight on DM High Yield (HY). For EM Asia USD IG, we reiterate our preference for selected credits in this space to avoid idiosyncratic credit pitfalls. We remain neutral on EM Asia HY and continue to advocate investors to stay highly selective and diversified.



We continue to see US interest rates topping out in the months ahead and maintain our positive view for gold and forecast that gold will trade above USD 2,000 /oz in 2H23 and thereafter, rising further to USD 2,100 / oz in 1H24. With little room for further supply shocks, we reiterate our modestly positive view of Brent crude oil with forecasts at USD 80 / bbl across 2H23 and USD 90 / bbl across 1H24. We also see LME Copper lower at USD 8,000 / MT in 2H23 and USD 7,000 / MT in 1H24, given near term uncertainty with China’s economic recovery.



In the Majors FX space, USD weakness is expected to return as 2H23 progresses. With the Fed expected to end the tightening cycle earlier than its peers, the rate advantage that USD enjoys over its peers will narrow further, sparking renewed weakness in the USD. We are constructive on duration and expect to see bond yields drift lower across 2023, as the balance of risk will increasingly tilt in favour of slowing economic growth, rate cut expectations, and richer safe haven premiums.


UOB House View 3Q 2023 report

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