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Equity – Rebound prospects amid headwinds Emmanuel Makonga more to inflation news than in the past, with large swings in the Investment Strategist, market following inflation data releases this year. Macro Research – Core Investments Exhibit 31: Inflation in the driver’s seat Global equity beta Key points 4.0 to economic surprise to inflation surprise 3.0 • Runaway inflation amplified by exogenous factors together with a dimming economic outlook have 2.0 been challenging for equity markets. 1.0 • The tightening of monetary conditions should continue to affect equity markets both in level and 0.0 direction terms. -1.0 • While equities tend to anticipate macroeconomic recovery in recessions, the potential for rebound -2.0 may be weaker in the lagged-stimulus environment 2008 2011 2014 2017 2020 Source: Citigroup and AXA IM Research, November 2022, 5y Rolling beta we expect in 2023. • The uncertainty around inflation prompted more hawkish Unexpected events rushed the process policy from central bankers, which led to a sell-off in bond markets. As a result, discount rates increased and led to a There is no doubt 2022 was a one-of-a-kind year – it marked mechanical decline in the value of equities. Thus, the de-rating the end of three consecutive years of positive returns for stock (-19.5%) has been the main reason for this year's market markets. At the time of writing, we are witnessing the worst correction, while earnings have held up rather well at +5.7% year-to-date performance (-13.8%) since the 2008 global (Exhibit 32). However, we do not expect this earnings’ financial crisis. This downturn can be explained by several resistance to continue next year. The consensus earnings-per- issues but two have captured our attention. First, the start of share growth expectations seem too optimistic given our the monetary tightening cycle, which fed the negative trend on outlook for next year's economic growth in developed markets the growth outlook. Second, the Russia-Ukraine war which had is at circa 0%, with recessions across Europe and the US. two major repercussions – one on sentiment, where the Therefore, we believe the market correction is not yet uncertainty brought by the war led investors to turn from risky complete, and the onset of further macroeconomic decline assets to safe havens, the other on inflation as Russia and could be the trigger for a deeper stock market decline. Ukraine are two major global suppliers of commodities. This high inflation regime coupled with the cost of monetary Exhibit 32: Resilient earnings helps to mitigate the fall tightening on economic growth has been harmful for stocks. Global equities: total return decomposition 60% Valuations 50% Earnings The only sector that has performed positively this year was 40% Dividends energy (+47.4%). Volatility in commodities helped inflate the 30% earnings of the industry's companies, which have been 20% 5.7% consistently revised upwards this year (+99.8%), keeping the 10% sector at attractive valuations throughout 2022. This 0% outperformance fuelled the rotation towards Value (-3.1%) -10% from Growth (-23.6%). The latter suffered from the rise in -20% interest rates due to its long duration bias. Finally, the -20.2% Defensives strategy (+3.2%) proved resilient, supported by -30% sustained revenues of healthcare and consumer staples. 2015 2016 2017 2018 2019 2020 2021 2022 Source: MSCI and AXA IM Research, November 2022 (YTD) Inflation has clearly been the major market mover this year Limited support in the financial condition outlook (Exhibit 31). The (negative) beta versus inflation surprises has risen consistently through the year and now stands at its In a classic liquidity cycle, fund allocations move from cash to historically lowest level. This shows how equities have reacted assets and vice versa. We are currently in a phase where asset 27

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