Real Assets Show Potential For Investors – Kleinwort Hambros

Amanda Cheesley

19 October 2022

With the outlook in 2023 remaining uncertain, and fears of a global recession on the horizon, Thomas Gehlen at 15 years, bonds were an important diversifier. But it has been the worst year for bonds since 1929, and we are underweight in them,” Gehlen said.

Kamal highlighted how the US bond market is predicting a recession, as the 10-year yield is much lower than the two-year yield, even though inflation has peaked in the US, there’s a tight labour market, robust economy and no recession right now.

He said that whatever the Fed is doing to slow down the economy, it is working, he said: “The long-term inflation expectations have come down considerably and the US has secured its mandate to anchor long-term inflation expectations."

“They have done a good job, even if it causes a short-term recession, otherwise we will end up in a 70s' type situation,” Kamal added.

But they do not see inflation coming down to 2 per cent anytime soon.

“Sterling has meanwhile rebounded off its lows, which has been causing problems for the UK and the rest of Europe. Our view is it won’t go a lot further,” he continued.

He also highlighted how emerging markets have held up better than expected against the strong dollar, due to a sensible monetary policy.

Nevertheless, a strong dollar could cause serious problems for a lot of firms. Although the central banks are not yet considering coordinated action to weaken the dollar and to strengthen other currencies, that might change, Kamal said.

However, he believes that the worst is probably over for sterling – partly reflected in the firm’s portfolio, which has been very dollar heavy towards being more exposed to UK assets.