Opening Note

The first half of 2023 both reaffirmed expectations and delivered shocks.

Headline inflation across the world is gradually easing as expected even though core inflation remains sticky. Global economic growth is also starting to slow. As a result, it is increasingly likely that the global monetary policy tightening cycle is nearing an end, although policy rates are expected to stay higher for longer.

However, we have been confronted with a crisis of confidence in the banking sector that led to the failure of three US regional banks, and outside of the US, the UBS takeover of Credit Suisse. It remains to be seen if banking sector concerns will resurface in the event a crisis unfolds in US commercial real estate, but systemic risk is unlikely.

There has also been disappointment surrounding China’s uneven post-COVID economic recovery, as many had counted on Chinese pent-up demand to support the global economy.

Looking ahead at the second half of 2023, global economic growth may slow further while business and consumer sentiment may weaken. Other uncertainties include the Russia-Ukraine war that sees no near-term resolution, continuing US-China tensions, and whether business and consumer sentiment in China improves.

While economic and geopolitical risks weigh heavy in the near-term, we hope our investment insights will help you forge a strong and resilient portfolio to meet your long-term financial goals.

Winston Lim, CFA 
Singapore and Regional Head,
Deposits and Wealth Management
Personal Financial Services

2H 2023 Market Outlook Video

With the global economy weakening, you might be wondering if we are going to enter a recession and how this would affect your investments. Learn how you can fortify your investment portfolio in our 2H 2023 Market Outlook video.

Our Risk-First Approach

2H 2023 Macro Outlook

With the first half of the year now in the rear-view mirror, two headwinds we highlighted at the beginning of 2023, monetary policy uncertainty and inflation, are likely to be behind us. The US Federal Reserve (Fed) and other central banks are nearing the end of their tightening cycle, and inflationary pressures are gradually easing in the face of a slowing economy. What confronts us now is uncertainty on the economic front, particularly how quickly the global economy slows.

While recent banking sector turmoil is unlikely to trigger systemic risk, we still need to monitor bank credit conditions and the impact on broader economic activity. We also need to be mindful of US commercial real estate risks, as that could affect the banking sector and broader economic sentiment. Other key areas to keep a close eye on are labour market indicators, consumer spending habits, and corporate earnings.

The economic cycle has four clear and inevitable stages. We are now past the peak of the cycle and are in the slowdown phase. It is hard to accurately pinpoint when a recession starts or predict how long it lasts. While economic growth has slowed, recent data suggests a recession is not imminent.

As for recent divergence across stock markets, US and Japan outperforming Emerging Markets and large-cap stocks outperforming small-caps, it is unclear whether these trends will continue or reverse in the coming months. Until it is apparent, hedging uncertainties as a portfolio strategy will be prudent.

Having passed the peak of the economic cycle, build a defensive and diversified portfolio to buffer against possible turbulence in the near-term. This is especially if tighter financial conditions cast a bigger-than-expected drag on economic growth. At the same time, there are still pockets of investment opportunities to be tapped on as the labour market and services sector remain strong.

Source: UOB PFS Investment Strategists.

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2H 2023 Outlook

2H 2023 Outlook

Learn more about the outlook for major economies, interest rates, stock and bond markets, major currencies and more.

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Credits

Credits
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Managing Editor
  • Winston Lim, CFA
    Singapore and Regional Head,
    Deposits and Wealth Management
    Personal Financial Services
Editorial Team
  • Abel Lim
    Singapore Head,
    Wealth Management
    Advisory and Strategy
  • Michele Fong
    Head, Wealth Advisory and Communications
  • Tan Jian Hui
    Investment Strategist
    Investment Strategy and Communications
  • Low Xian Li
    Investment Strategist
    Investment Strategy and Communications
  • Zack Tang
    Investment Strategist
    Investment Strategy and Communications
  • Nicholas Bryan Chia
    Intern
UOB Personal Financial Services Investment Committee
  • Singapore
    • Abel Lim
    • Ernest Low
    • Michele Fong
    • Tan Jian Hui
    • Low Xian Li
    • Zack Tang
    • Jonathan Conley
    • Alexandre Thoniel, CAIA
    • Chen Xuan Wei, CFA
    • Chia Hong Wei
    • Daphne Chan
    • Marcus Lee, CFTe, CMT
    • Ivan Hu
  • Malaysia
    • Ryan Tan
    • Mow Wei Sern
  • Thailand
    • Suwiwan Hoysakul
    • Boonnisaed Thanyaworaanan
  • China
    • Huang Li Li
  • Indonesia
    • Diendy

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