A report by Fidelity International cautions of fragile markets and anticipates a hard landing in developed markets.
In its '2023 Investment Outlook', Fidelity International revealed that markets are currently experiencing a delicate balance between resilience and fragility. The driving factors behind this fluctuation, according to Fidelity, are liquidity, labour, lags and lending.
The report highlights the positive influence of abundant liquidity and tight labour markets on the resilience of consumer and corporate sectors. These factors have also led to the postponement of the impact of aggressive rate hikes and pushback of maturity walls.
However, Fidelity remains cautious about the delayed effects of policies and the tightening lending standards, which contribute to their expectation of a hard landing in developed markets (DM).
In response to this outlook, Fidelity recommends a conservative investment approach, including a shift towards higher quality assets and an overweight position in US Treasuries.
The report identifies various opportunities such as higher quality investment-grade bonds, real estate and private credit sub-sectors benefiting from sustainability trends, cross-border capital flows and low default rates.
Andrew McCaffery, global chief investment officer at Fidelity International, is urging investors to be proactive in capturing mispriced equity valuations, stating, "With the US and Europe having already seen strong gains as central banks become more hawkish again, this backdrop looks attractive for parts of the emerging world, particularly in relative value terms."
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