Liontrust Views Winter 2023 - Flipbook - Page 9
STOCKS
BONDS
US stocks became expensive after a
decade in which the technology companies
enjoyed phenomenal performance. The
corrections seen in 2022 have brought
their valuations back to more sensible, and
less unattractive levels.
After their prices were driven down severely
in 2022, US bonds are offering much
more attractive yields that are more in line
with historic levels. Higher-risk bonds giving
greater yields offer good opportunities
and while we consider global government
bonds to be ‘neutral’ the high yield market
is attractive enough to be ‘overweight’. The
US component of both the global government
and high yield markets is significant.
EUROPE
STOCKS
UNITED KINGDOM
EMERGING MARKETS
UNITED STATES
BONDS
The outlook for European stocks is tarnished
by the Ukraine crisis, from which it is the
region most at risk. Some European countries
are heavily reliant on Russian energy.
The
European
Central
Bank
has
implemented some significant interest rate
rises in recent months and has pledged
more in 2023. These, together with tougher
economic conditions threatening to drag on
company earnings, will create headwinds
for European bonds.
STOCKS
BONDS
Emerging markets have proven themselves
to be better at implementing appropriate
policies to deal with inflation than developed
countries, creating a supportive economy
for companies. Some of them have also
benefited from being commodity producers,
which have seen significant price rises.
STOCKS
BONDS
The UK stock market outperformed many
others in 2022. UK stocks are still relatively
cheap though after being disregarded by
many international investors after the Brexit
vote in 2016.
The credit ratings of emerging market bonds
are, on average, superior to those of their
high-yielding equivalents in developed
markets. The Russia-Ukraine situation does
highlight the political risks inherent in
emerging markets, however.
There is a prospect of significant real yields
from UK government bonds once the inflation
spike abates, while corporate bonds are also
more attractively priced after the corrections
seen in 2022. While we consider UK
government bonds to be ‘underweight’ the
corporate bond market is attractive enough
to be ‘neutral’.
ASIA PACIFIC
JAPAN
STOCKS
Asian economies fared well during Covid
and the re-opening of China will provide
more support. Asia stocks will also benefit
from strong long-term economic growth and
favourable demographics.
The strengthening US dollar did cause
problems for much of 2022 for Asian
countries that use it to repay debts and buy
imports. But a weakening greenback is now
a positive for the region.
STOCKS
Japanese stocks sold off in line with many
other markets in 2022 and so they do look
better value. However, many Japanese
companies are export-driven, so reduced
trade in Asia and a weakening global
economy could cause them problems
going forward. The Bank of Japan has been
an outlier among developed market central
banks by refraining from raising interest
rates. While this supports the domestic
economy, rising inflation could cause issues
for Japanese stocks.
LIONTRUST VIEWS – WINTER
9