23.10 Liontrust Views Autumn 2023 Literature (Single) - Flipbook - Page 6
A FORWARD
LOOK
It’s been a year of high inflation and repeated
increases in central bank interest rates but are
things likely to change in the coming months?
While UK inflation fell from a peak of nearly
12% in the first quarter to less than 7% in July,
market sentiment is still divided about the
ultimate impact of inflation and ongoing high
interest rates. Recent figures from the Office
for National Statistics (ONS) showed the UK
economy contracted by 0.5% in July, faster
than predicted.
Across of the global economy, monetary
tightening through raising interest rates has
continued this year, albeit less aggressively than
in 2022. Headline inflation has fallen from
its highs while core inflation, which excludes
energy and food, has remained stable. The
key question for markets remains how high
interest rates will go to tackle inflation.
The positive news is that the supply chain
issues, Russia’s invasion of Ukraine and the
poor harvests in mainland Europe last year
that drove inflation in 2022 now seem to be
6
LIONTRUST VIEWS – AUTUMN
receding, reflected by the falls in headline
inflation this year.
Looking forward, we believe that although
there might still be bad news around the
corner and the anxiety from this is weighing
on prices, stock markets could turn before the
news does.
Equity regions that appear positive include
the UK, Asia Pacific and emerging markets,
all of which have been the laggard regions
in 2023. We see the UK as being relatively
cheap after being shunned by many
international investors since the Brexit vote
in 2016, while Asian and emerging market
economies should benefit from strong and
favourable demographics over the longer
term.
Outlook
When we are positive about an asset class
(such as equities, bonds and property), we
categorise it as ‘overweight’ and may look
to increase our allocation to it in our funds.
Conversely, when we are negative about an
asset class, we classify it as ‘underweight’
and may reduce the allocation. Finally,
‘neutral’ means that we are neither positive
nor negative.
The two areas where we have changed
weightings recently include:
• Investment grade corporate bonds
• Emerging market debt
KEY
Overweight
Overall, the underlying tone of markets has
stabilised. While fears of a recession persist,
we continue to believe that a mild downturn
is more likely than a deep recession because
central banks will strive to avoid it, and the
global economy remains on a solid footing.
Underweight
Neutral
