Multi-Asset Trends to Watch

Caglasu Altunkopru: As we think about this year, I think one of the things that we need to be mindful of is this idea of this is still an economic environment that is still under pressure from exceptionally fast tightening and monitory policy.

So, this year we've seen not only the supply chain distresses ease, but also a normalization process in the inventories that sort of came along with that. So if you put those things together, you actually have an environment that where we're sort of seeing growth start to improve from depressed levels—you start to see that come through in confidence.

Given our sort of relatively sanguine view on growth prospects, we're not quite constructive on rates just yet, but we do think, as we go forward in time, and as inflation forces normalize, sovereign bonds will become an increasingly good diversifier to equity investments. So what we're looking for, again, if our baseline scenario plays out, we're looking to add to our duration exposure as increasing a hedge to our equity exposure.

So with equities, we've started to increasingly become more constructive. On the corporate margins side, if you think about last year, last year was a phenomenal year in terms of nominal growth for corporates, but earnings suffered because margins were compressing. Corporates were having a difficult time trying to match output prices with input prices.

So now, this year, as supply chain pressures ease, we're seeing those issues no longer be relevant. And we've actually seen the impact of this come through in the margins. So in the goods sector, you see increasing signs that output prices are catching up to input prices. And that's happening while headline inflation is fading, which is phenomenal. At the same time, you're seeing inventories start to normalize.

If we think about the service sector instead of the goods sector, in the service sector, you know, if you think about the past couple of years, companies had a massive drag from lack of operating margin. So now as that service economy has rebounded right back, you're seeing these companies not only experience increased pricing power but also better economies, in terms of being able to distribute those fixed costs and therefore margins are improving as a result.