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Global Private Banking Welcome Dear client As we look into 2023, the headwinds with the yield level of short-to-medium hedge funds and a core allocation to from slowing growth and higher rates dated and highly rated bonds, which we private assets and real estate. And finally, that have been plaguing investors will overweight. Adjusted for their relative we position in structural trends, noting remain key market drivers. But while risk levels, bonds have sold off more that many companies that are well the cyclical outlook remains a major than equities this year, making them placed for such trends now often trade at challenge, we are starting to see a silver look cheap. We also like bonds for cheap valuations. lining on the rate front. diversification purposes, because their One case in point is sustainability. Some Let’s look at the bad news first. Global correlation with equities typically drops governments have allowed more oil and economic momentum continues to in times of slowing economic growth. gas drilling to secure energy supplies, slow, with the Eurozone and UK in We further diversify portfolios through but this does not put into question the recession, US growth well below normal, our overweight in hedge funds, which long term investment case for climate and China’s 2023 recovery likely to be benefit from high volatility, the diverging mitigation and adaptation solutions. shallow. This cyclical headwind largely fundamentals of different countries, and In fact, the same governments have determines how we feel about stocks. the rising income hedge funds receive on also invested in renewable energy We expect consensus earnings growth to their cash balances. and nuclear, while households and slow further, so we are underweight on While our confidence in short-to-medium businesses have invested in solar and global equities, with a defensive sector dated bonds, our upgrade of Chinese increased insulation, and are making bias and a focus on quality stocks with stocks and downgrade of USD are signs production processes more efficient to strong market positions. Geographically, that we see a silver lining, we will keep save on high energy bills. So the short- the relative resilience of the US leads monitoring important milestones that term cost incentive is adding to the long- us to prefer US stocks over European could make us add more risk. When term sustainability driver, compressing stocks. In Asia, we have upgraded the peak in core inflation and Fed rates the green premium and advancing new Chinese stocks because policy is eventually confirmed, we may well green solutions and technologies. measures are easing COVID and increase our rate exposure through At the end of a difficult year, investors housing related risks. Asia’s reopening is increased duration and add back to our face an important balancing act. On supportive of economic activity but the tech exposure. Good news on the rate the one hand, there is great uncertainty tech cycle is slow. front may help stocks too, but before we around geopolitics and the timing of On the rate front, markets have tried see a sustained equity rally, the cyclical the turn in the rate, inflation and growth several times to anticipate peak rates, outlook first needs to stabilise. That will cycles. On the other hand, almost all but so far fallen back each time. The have to wait, as rate hikes have a lagged assets have repriced since the start of lower-than-expected US inflation print effect on economic growth. But once the 2022. The good news is that even quality for October, however, signals that we are cycle is more stable, we could get more assets are now much cheaper and getting closer to peak rates, even if we’re positive on stocks and lower rated credit. investors can build resilient portfolios not quite there yet. Commodity price Stronger global risk appetite would with respectable expected returns, and inflation, transportation costs and supply eventually also lead us to take a bearish wait for better fundamentals to take chain issues are all easing. Rents are view on USD. riskier positions. still rising but should plateau in coming Those are potential reasons for future months, as they tend to follow house optimism, but for now, we remain prices, which have been falling. cautious and see four priorities for As the Fed approaches peak rates, investors. First, we rebalance portfolios USD’s impressive bull run should come towards high rated bonds. Secondly, we to a halt. We therefore adopt a neutral build recession resistant portfolios by view on the greenback. And with bond focusing on quality stocks and partial Willem Sels, markets already pricing a 5% Fed funds inflation hedges. Third, we enhance the Global Chief Investment Officer rate for Q1 2023, we feel comfortable diversification from bonds by adding 23 November 2022 5

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