Diversify beyond the US and growth

Year Ahead 2023

Investing in 2023

Message in focus

We favor a selective approach within equities, and think investors should diversify beyond the US and growth stocks.

We recommend investors diversify beyond the US and growth stocks. We like value, including energy, which should be more resilient if inflation proves sticky or rates rise by more than expected. Earlier inflection points in China and Europe favor outperformance in select European names, emerging market equities, and some early-cycle markets relative to the US. With uncertainty around the US economic outlook still elevated, we also like more defensive areas like consumer staples, while utilizing capital preservation strategies where applicable.

Recent economic data suggest inflections are happening at different speeds in different regions. China and Europe are inflecting sooner than expected, creating a variety of investment opportunities (see the “Anticipate the inflections” Message in Focus for more detail on European themes and China reopening beneficiaries). Meanwhile, the US economy has remained robust, but this may raise the risk of a later, deeper recession as the Fed tries to combat inflation.

Diverging inflections back a more regionally selective approach to risk decisions. Tactically, we think investors should diversify beyond the US and growth stocks. We also advocate select defensive exposure given uncertainty about the US economic outlook.

Talking Points

  • We favor a more selective approach within equities, and think investors should diversify beyond the US and growth stocks.
  • We like value, including energy, which should be more resilient if inflation proves sticky or rates rise by more than expected.
  • Earlier inflection points in China and Europe favor outperformance in select European names, emerging market equities, and some early-cycle markets relative to the US.
  • Given uncertainty about the US economic outlook, we also advocate select defensive exposure, including global consumer staples stocks and capital preservation strategies.

Year Ahead 2023

2023 will be a year of inflections as investors try to identify the turning points for inflation, interest rates, growth, and financial markets against a complex geopolitical backdrop.

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