Insights

This past year has been one of the worst periods on record for investors. We assess what could signal a turnaround in 2023.

As delegates gather at COP27, they confront the same long-term challenge posed by climate change as they did last year. But the context has changed dramatically: in light of the war in Ukraine, governments need to balance net-zero goals with a new imperative for energy security.

In their latest investment outlook, our Asset Allocation team discuss their positioning and investment views for the coming months, in light of rising recession risks, flaring geopolitical tensions and ebbing market liquidity.

We are marginally more cautious as the Chinese economy becomes unsettled and supply-chain issues persist, but retain our belief that we are in the middle of the cycle, not approaching the end.

Global temperatures are currently on a trajectory to increase by nearly 4°C above pre-industrial levels, which would be truly catastrophic, unless action is taken.

We continue to favour staying long equities, and are prepared to increase our exposure in a dip, as investors bask in the sunshine of a global economy in mid-cycle.

The more things stay the same…

Q3 Outlook: Taking stock

We believe there is a striking disconnect between market pricing and the real economy, especially with regard to expected company earnings.

Our survey responses have revealed that inequality is an underlying, long-term thread weaving through many apparently shorter-term issues.

A once-fringe economic theory has been embraced by liberal politicians at the same time as traditional budget hawks have been in retreat. Its rise has potentially radical implications for inflation and investors.

In this outlook, we bring together teams from across LGIM to answer the key macro and market questions for our clients over different time horizons.

Unfortunately for markets, our bearish outlook for 2018 came to pass. For 2019, the key question is how tightening financial conditions will impact heavily indebted borrowers – and whether this raises the risk of recession.

Raising the retirement age can help with the fiscal costs of living longer. But our unhealthy lives could force us to look at other options.

We turn cautious on global equities on a tactical and medium-term view, as US stocks flirt with record highs even though risks to the world economy are mounting.

We remain cautious overall as risks of the US election, trade with China, unpredictable geopolitical events and Brexit continue to smoulder.

Can environmental, social and governance concerns (ESG) fit within a factor-based portfolio? In this article, we tackle two issues: the inconsistency in methodologies for ESG scoring, and ways to integrate ESG considerations into factor portfolios.

Investors need to factor in how immigration concerns in the European Union could fuel the rise of populist parties, potentially increasing the political risk premium.

A brief discussion of some of the behavioural biases that can explain factor premia.

Can cyclical tailwinds paper over the structural cracks? And what’s the outlook for global trade, China and equity investors?

While trade tensions have escalated in recent months, we believe the case for emerging markets remains compelling - if investors know where to look.

Looking into 2018, US policies will remain one of the biggest focal points for EM assets, even if it has felt like ‘waiting for Godot’.

Companies that have seen their share price depreciate sharply in the face of self-inflicted wounds, structural challenges, or cyclical headwinds, represent potential ‘turnaround stories’. In this article we look at the attraction of investing in these businesses, and evaluate the risks or opportunities they present.

We expect another strong year for growth with the global economy firing on almost all cylinders. But the market has priced in this optimism, implying greater vulnerability for disappointment. We expect the low interest rate environment to continue into 2018. While interest rates can drift up, we do not think this is the beginning of the end for the bond markets.

A weak pound and rising inflation, set against a tight labour market and loose credit conditions, should keep the UK out of recession.

The retirement of baby boomers is having a negative impact on economic growth. This is bad news for the return on risky assets and applies downward pressure on interest rates.

Peak oil demand is a contentious topic. It is crucial for climate change, yet there are possible negative downsides such as volatile oil equity prices and corporate bond defaults.

Driven by positive demographic trends, Asia has been a critical engine of the global economy, contributing around 30% of world GDP growth since 1980.

What is a fallen angel? In theological terms, a fallen angel is one who has rebelled and been exiled from heaven.

Investors currently buying UK government bonds are doing so in the knowledge that they are accepting a yield which is lower than the rate of inflation, i.e. the real yield.

It’s tempting to think otherwise, but not all emerging market debt is created equal. In this piece we examine the public, private and external debt profiles of individual emerging markets.

Our forecast of a long-term structural shift away from coal could have dramatic implications for investors.