INVESTMENT OUTLOOK FOR 2023 - 11 - not accurately reflect what we believe are favourable fundamentals. We are not yet ready to add more broadly to riskier assets such as equities. We are still concerned over greater downside to both growth and earnings, and continued geopolitical uncertainty could weigh further on cash flow projections. At the same time, we acknowledge that areas including long-duration US tech companies are starting to look interesting as 2022 draws to a close. Every risk has its price There are usually a handful of key judgements upon which one’s investment views ultimately rest. Today, there are three particular questions that matter enormously for return prospects in 2023. 1. When will the US Federal Reserve and other major central banks pivot towards lowering policy rates? 2. How deep will the growth and earnings correction be? 3. (The biggest unknown) How great will geopolitical disruption from China, Russia- Ukraine, the US, and Europe (including the UK) be in 2023? The Fed has so far delivered the sharpest speed of policy tightening ever The Fed has so far delivered the sharpest speed of policy tightening ever delivered. When will they pause and to allow effects of the increases to work their way through the system, avoiding the policy error of pushing on the brakes too hard? On balance, our judgment is that the odds of a quicker, sharper policy pivot are mounting, and prospectively quite fast. Exhibit 1: Real interest rates have moved significantly Three-month moving average 3.0 % 2.5 5 year-5 year US real yields 2.5 2.0 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 -0.5 -0.5 -1.0 -1.0 -1.5 -1.5 2005 2010 2015 2020 Data as at 25 Oct. 2022. Sources: Bloomberg, BNP Paribas Asset Management.