Standard Chartered has advised investors to seize income opportunities in H2 2023 by increasing their allocation to High Quality Bonds, while adopting a cautious stance towards equities.
In its Global Market Outlook report for the second half of 2023, the bank said high-quality bonds present a clearer risk/reward profile compared to other assets, boasting attractive yields.
Bond prices are expected to rise as economic growth slows with returns projected to be less affected by a slightly higher Fed peak rate, given the already elevated current yields. The report recommends taking advantage of prevailing market conditions by securing the yield on high-quality Investment Grade (IG) bonds before yields further diminish, positioning high-quality bonds favourably against cash.
Striking a balance
Additionally, the report advocates upgrading equity to a core allocation, particularly in combination with Developed Market (DM) investment grade government bonds. This strategy aims to strike a balance between capitalising on strong equity momentum and managing the potential risk of a US recession, which remains a tangible concern although possibly delayed.
In terms of regional positioning, the report favours an overweight stance on Asia, including Japan, for equities and Asia USD bonds. It foresees Chinese equities becoming even more affordable, with the potential for unlocking their real value as domestic policies increasingly stimulate the economy and US-China geopolitical tensions ease.
Furthermore, the report identifies two factors driving the outperformance of Japanese equities over their global counterparts: robust momentum in stock buybacks and earnings growth, bolstered by higher nominal economic growth and sustained inflation levels.
The report acknowledges the moderation in valuations of Indian equities, suggesting improved value for investors seeking to capitalise on the market's outlook.
Moderation on gold
While the report advises a more moderate view on gold, it maintains a neutral position. Gold has historically outperformed during recessions and demonstrated its safe-haven qualities in times of crisis. The report cites continued demand from central banks, households, and investors as key factors supporting the inclusion of gold in investment portfolios.
Dr Owen Young, Head of Affluent and Wealth Management for Africa, Middle East, and Europe at Standard Chartered Bank, said: “Our Global Market Outlook report aims to equip investors with actionable insights in today’s rapidly evolving economic landscape. By adjusting their investment strategies and maintaining well diversified portfolios, investors can optimise their portfolios and capture potential incomes, while effectively managing risks.”-- TradeArabia News Service
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