In addition, he added, the outlook of slowing growth will be beneficial to government bonds.
If the recession ahead is more severe, high quality fixed income will be in demand as a safe place to park money.
The changing inflation dynamics should also mean the reinstatement of the negative correlation between equities and bonds, which was broken in 2022.
“[This] will enhance bonds’ credentials as a diversifier in multi asset portfolios, especially important at a time when we believe equities could come under renewed pressure,” Rikkerink said.
Although the start of 2023 might look challenging, Rikkerink is optimistic about the prospects for risk assets over a longer-time horizon.
“Inflation will come down and central banks will eventually become more accommodative.
“While still not yet cheap, equity valuations have come down a long way from their frothy post-pandemic highs,” he said, adding positive news is expected from China on zero-Covid rules at some point.
“And there are pockets of real value emerging in many asset classes, such as investment grade bonds.”
sally.hickey@ft.com
