Benjamin Melman, global chief investment officer at this week in its outlook for 2023, which reflected expectations of a tough winter for the global economy, followed by some reacceleration, and full-year inflation of 6.7 per cent, down from 9 per cent in 2022.

“Equity and bond prices fell simultaneously this year, creating significant diversification challenges,” said Daniele Antonucci, chief economist at Quintet Private Bank, parent of Brown Shipley. “While 2023 promises continued volatility, high-quality bond markets – and especially government bonds – should once again provide defensive benefits, reducing portfolio risk.”

US Treasuries look appealing heading into next year, he believes; it is likely that US inflation has already peaked and upcoming rate hikes will be smaller than in the recent past – with hiking expected to cease by late in the first quarter or early in the second quarter.

“While the macroeconomic outlook is far less rosy in the eurozone and UK, both government and investment-grade bond spreads appear increasingly attractive as inflation is now moving closer to the peak,” Antonucci said. “Emerging-market hard-currency sovereign bonds suffered in 2022, but valuations are also now compelling, especially relative to US high yield,” he continued.

The firm has increased its exposure to US government bonds and maintained its exposure to its emerging market sovereign bond position which it believes faces tailwinds in 2023. 

Equities
For the equity markets, Melman said he is neither optimistic nor pessimistic, saying he had never seen a recession without a negative impact on the equity markets. 

Historically, the best entry points have been at the heart of the recession, Edmond de Rothschild said, but it believes patience is needed before increasing exposures.

In view of US policy stabilising and the likely normalisation of Chinese economic policy, the firm believes that emerging equities, after a long period of underperformance, have the greatest potential for a rebound. US equities, to a lesser extent, should perform well, the firm continued. 

Meanwhile, European equities, unlike US equities, were able to take advantage of the very sharp increase in interest rates in the United States via the appreciation of the dollar, which boosted the profits of these high export companies, the firm said. European equities should also benefit from the gradual normalisation of the Chinese economy which the firm expects in 2023, though they will remain sensitive to the energy crisis and developments in the conflict in Ukraine.

Meanwhile, Brown Shipley believes that US and emerging markets will outperform the euro area. The firm is keeping its overall equity exposure slightly reduced as it doesn’t believe it is time to re-risk its portfolios yet. 

“We maintain our conviction that eurozone equities have not yet fully priced in deteriorating economic conditions. By comparison, emerging-market valuations appear attractive. We anticipate that China will reopen and stimulate its economy in 2023, supporting emerging markets, which will receive a further boost from a slight weakening of the US dollar,” said Cyrique Bourbon, head of portfolio strategy at Quintet Private Bank.

The firm maintains its preference for emerging market equities and reduced its exposure to eurozone equities, while adjusting its allocation within the US market, adding to high dividend and low volatility equities. It has also reduced its dollar cash exposure, as it predicts a slightly weaker dollar in 2023. It continues to hold gold as a strategic hedge at a neutral level relative to its long-run allocations.

Its investment philosophy is to look for companies with superior quality and growth, and it believes that its direct equities are well positioned for the medium to long-term. 

It also believes that companies with better ESG credentials should generate better results. The firm's top 15 equity holdings include Microsoft, Apple, Tesla, Amazon, Proctor & Gamble as well as Pepsico and Coca Cola.