We believe the opportunity to earn more predictable returns is appealing against an uncertain backdrop. (Shutterstock)

Should I lock in improved yields?

After a poor 2022 for global fixed income, we believe bond returns should recover in 2023. The traditional role of bonds in a portfolio—to provide regular income and add stability—should resume amid higher yields, slowing growth, and peaking inflation.

We believe the opportunity to earn more predictable returns is appealing against an uncertain backdrop. We prefer higher-quality segments of the fixed income market, including high grade and investment grade bonds, along with resilient credits. Investors can also consider select sustainable bonds, which offer comparable yields. The typically long-term investment horizon of sustainable investors may also mitigate volatility in such positions.

Will tech continue to underperform value?

Global tech stocks underperformed in 2022 as interest rates rose sharply. The MSCI World IT Index fell 31.3%, versus a 19.5% decline in the broader MSCI World Index. But despite the decline, we still don't see sector valuations as cheap. Global tech sector earnings growth is expected to decelerate further, with flat levels likely in 2023 amid still lukewarm consumer demand and a deteriorating enterprise outlook.

We remain least preferred on the technology sector. Instead, we favor value stocks, particularly energy equities, and more defensive parts of the market like consumer staples and healthcare. Value stocks have historically outperformed growth stocks when inflation is above 3%, and in the 12 months following the Federal Reserve's final rate hike of a cycle.

Can energy continue to outperform?

Oil prices last week notched their biggest weekly gain in three months. Brent crude rose 8.5% for the week ended 13 January, reversing its decline from the prior week. While oil prices may remain volatile in the near term, we retain a positive outlook. China’s emergence from zero-COVID restrictions should boost oil demand, while Russia’s output drop is likely to be felt more after the EU ban on Russian oil products kicks in on 5 February. We think modest supply growth, underinvestment, and low inventories will all contribute to a tight oil market in 2023.

We maintain our Brent crude price forecast at USD 110/bbl this year. With speculative positioning far from stretched, we advise that risk-taking investors add long positions in longer-dated Brent contracts or sell downside price risks. We also retain our preference for global energy stocks.

For more topics, see Top 10 questions answered.