Global macro strategy themes and top trades for 2023

The global cycle is now rolling over and even if the recession is likely to be mild, the subsequent recovery will be disappointing. Yet we see ample opportunities going into 2023 given the dislocations in both safe and risk asset pricing this year.

What you will learn:

• Our first top trade seeks to capitalise on attractive and above neutral real yields on offer in long-end US TIPS. Even as the Fed has exited as regular buyer, we expect multi-asset funds and foreign bond holders to return to US fixed income in 2023, as FX hedged yields improve from here.
• Our second top trade is to overweight EM vs DM equities. EM equity valuations are extremely depressed, and we think they will rerate over the next year as global inflation falls, policy tightening pauses and the USD ultimately peaks. Meanwhile, EM economies are likely to prove relatively resilient to the downturn and we see the EM vs DM growth gap widening in 2023.
• Our third top trade is in EM fixed income. We think sovereign high yield FX-debt will strongly outperform. Our top pick is Angola, which we expect to be upgraded by one- to two notches next year. Within core EM, Colombia is also likely to do well, as too much risk is priced in.