According to Luca Paolini, Chief Strategist, Pictet Asset Management, “a soft landing for the global economy looks increasingly unlikely. Which means riskier asset classes could see further declines.”

Macro: It is too early to get sanguine about inflation. Even if prices have peaked, it is looking sticky. Business and consumer surveys, meanwhile, are turning gloomy even though central banks are likely to ignore these until they feed through to hard economic data. At the same time, valuation and sentiment indicators no longer offer a compelling case to be overweight riskier assets.

Bonds: We remain overweight US treasuries, especially as the Fed’s tightening campaign has covered considerable ground and yields are beginning to look attractive. When it comes to Europe, the region’s weakening economic outlook means we are underweight European investment grade and high yield debt. We also remain underweight European government bonds because we believe the economic fundamentals of the Eurozone demand a more aggressive tightening campaign than the one currently in place.

Equities: Chinese stocks are looking vulnerable with latest consumption and investment data from China having come out weaker than expected. Whilst Chinese equities are looking cheap, we believe the risks are too high in the short term. We also remain cautious on the US and Europe. The former is still by far the most expensive equity market and the latter is on the brink of recession thanks to effects of the Ukraine war on the region’s energy supplies.

However Japanese stocks continue to be a bright area as the country benefits from a post-Covid pick-up in consumer demand, benign inflation dynamics and better energy security. We also see some opportunities in UK equities, thanks to the market’s defensive characteristics and exposure to the energy sector. Furthermore, a weak sterling should boost the value of international earnings.