Macroeconomic Strategy Team
7 October 2022
A period of slowing growth
Investors hoping for a return of Goldilocks-like trading conditions are likely to find themselves disappointed in the coming months. In our view, the global growth picture—which will be reflected in the trading environment—appears set to deteriorate through the rest of 2022 and to remain weak in the first half of 2023.
Much of current market commentary seems overly focused on whether the global economy or a specific region will slip into recession. We’ve always felt that such a binary “will it, won’t it” framing isn’t helpful. What’s more important is how quickly we’re likely to enter a period of very slow growth and how long it will last. In our view, we could be looking at between four and six quarters. For context, we do expect the United States, Canada, and Europe to slip into recession next year: Stagflationary dynamics—which have been amplified by Russia’s invasion of Ukraine—remain at play and make for a challenging backdrop for risk assets.
Stagflationary dynamics could persist until the end of 2022, YoY (%)
Source: Bloomberg, Macrobond, Manulife Investment Management, as of September 15, 2022. YoY refers to year over year. The gray area represents a recession.
Macro anchors that could shape risk markets in the coming months
1 Slowing growth in China
The economic costs of the country’s dynamic zero-COVID policy mount as the fear of additional large-scale lockdowns persists. Slowing global growth would also likely mean a reduction in global appetite for Chinese exports.
2 Inflationary pressures should ease, but inflation is likely to remain elevated
Inflationary pressures should unwind gradually over the coming months, but they’re likely to remain at elevated levels through the rest of 2022 and into next year.
3 Central bank tightening as a headwind to growth
Global central bank tightening in both developed markets and emerging markets will contribute to deteriorating global liquidity conditions and act as a headwind to growth.
A challenging few months ahead
In our view, the prognosis is clear: We’re entering a challenging period for risk markets, in the short term at least. The broader geopolitical environment doesn’t help, as two important events—the Chinese Communist Party Congress in October and the U.S. mid-term elections in late 2022—will no doubt dominate market chatter. In times like these, it’s important to consider enhancing portfolio resilience. While it’s true that opportunities can emerge in times of uncertainty and volatility, it’s just as important for investors to cut through the white noise in the near term and train their goals on the longer term.
The Rebound after the Storm
With potentially greater clarity in movement of rates and currency, credit should lead on stronger government policy, resilient economic buoyancy, and an evolving Asian credit landscape.
Multi-Assets: Opportunities await as global rates take new turns
Despite elevated inflation and higher interest rates, investors can watch for key events in 2023 that can present opportunities. We describe our dynamic and strategic asset allocation views and how a multi-asset outcome-oriented approach may help investors during market uncertainty.
Greater China Equities: Pivots, positioning and pace forward
It has been an eventful year for Greater China stock markets, with domestic and global events triggering broad-based weakness and elevated volatility in Mainland China (China), Hong Kong, and Taiwan. In this 2023 outlook, we describe the 3 Ps that set the tone for the new year: pivots, positioning and pace forward.