After facing difficulties on all fronts in 2022, investors should be rewarded with more opportunities in the year ahead, even as the global economy confronts headwinds.
We expect a modest recession in 2023 across developed markets as central banks continue to battle inflation, yet uncertainties remain. We discussed these and other factors at PIMCO’s Cyclical Forum in December in Newport Beach, arriving at three key economic themes heading into 2023, which you can review in our full readout.
Any recession could further challenge riskier assets such as equities and lower-quality corporate credit. But we believe the repricing across financial markets in 2022 has improved prospects for returns elsewhere, particularly in bonds. We are focusing on high quality fixed income sectors that offer more attractive yields than they have in several years.
In our concentric circles framework, where risk increases toward the outer rings, we are prioritising investments nearest the core for 2023. Rather than taking greater risks to chase incremental returns, we’re seeking to make portfolios resilient, targeting investments that should be able to withstand even a more significant downturn. In other words, we’re expecting a mild recession but preparing in case of something deeper.
