Global Private Banking 3. What could make us more could happen in Q1 or early Q2, and growth or a small earnings recession, constructive? would create a more constructive bond and earnings momentum stabilises, We’ve outlined our core views and the environment and allow us to increase this could be the signal for markets that uncertainties around that view, which our duration exposure. FX markets enough pessimism is priced in. This were mainly focused on the downside would be affected too: we moved USD would be a key milestone allowing us risks. But what could make us more to a neutral view after the lower-than- to add back to equities and take a less positive? We’re currently still facing the expected October CPI figure, which defensive sector stance. Local factors worst possible combination of slowing will make it harder for markets to keep matter too: while recent policy measures growth, high inflation and rising rates. forecasting ever higher rates, and have made us more positive on China, But almost all assets have become much should halt the widening in interest rate we would want to see an easing of the cheaper than they were in early 2022, differentials between USD and other energy crisis and the Russia-Ukraine and if markets become more confident currencies. In equities, more stable – or war before upgrading Europe. In the that some of the fundamentals are even lower – bond yields would mean UK, increased trust in government stabilising, and risks are appropriately more support for growth stocks, and policies helps, but it is hard to see a priced, markets could bottom and even this could lead us to add back more high sharp and sustained market rebound recover later in 2023. conviction themes under the ‘Digital amid a prolonged recession. In stage 3, Our table shows a possible path towards Transformation’ trend. We note though improved risk appetite would reduce the a more constructive environment. We that we would still continue to stick to safe haven appeal of USD, leading to think we’re more likely to see better rate quality stocks and bonds until the cycle more support for cyclical currencies and sentiment before we see better news starts to bottom. those with a more attractive yield. on the growth front. Markets will try to From a cyclical perspective, we foresee For now, we maintain our cautious assess when the Fed can be confident a possible bottoming of global economic portfolio composition, but we think that inflation is well on its way down, data around Q2 or Q3, but little upward it is useful to continue to watch key because that will allow it to slow hikes economic momentum from there. On milestones as we are hopeful that some and eventually pause. It’s impossible the earnings side, we think consensus markets will see a rebound sometime in to know for sure, but this milestone forecasts need to come down further, 2023, and investors need to be nimble. but once analysts forecast zero earnings How could our views change when rates peak or growth bottoms? Current position ® Underweight equities – building recession resistant portfolios ® Overweight bonds but with a focus on short-to-medium maturities and quality borrowers ® We moved USD to neutral Milestone 1: What could we change after rates have peaked? ® Extend duration of bond holdings ® Less challenging environment for tech and other growth stocks ® Stick to quality stocks and bonds Milestone 2: What could we change when economic growth and earnings stabilise? ® Add to equity exposure and become less defensive ® Selectively add to credit risk ® Geographical preferences depend on improvement in key local challenges ® USD to decline 11