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1、INVESTMENT GUIDEMarket Outlook 2023Marketing MaterialPublication date:12 January 2023,8:00 CETPlease find important legal information at the end of this document.Source:Bank Julius Baer&Co.Ltd.(Julius Baer),unless explicitly stated otherwise.3 EditorialDear reader,2022 turned out to be a perfect sto

2、rm,as a major war in Europe,a global energy crisis,and record-breaking inflation were accompanied by a synchronised,ruthless monetary-policy tightening campaign by global central banks,leading to the worst bond market sell-off in centuries and an equity bear market.On top of all this,China suffered

3、a marked slowdown,driven by its zero-tolerance policy on Covid-19 and continued issues related to its real estate sector.Where does that leave us as we enter 2023?There is no doubt that geopolitical tensions are likely to continue,following what we call the end of the peace dividend.When it comes to

4、 the macroeco-nomic outlook,we expect 2023 to be about recent trends cooling down on many levels.Both growth and inflation rates are likely to slow,especially as the year progresses.Christian GattikerHead of ResearchYves BonzonGroup Chief Investment OfficerMember of the Executive BoardAgainst this b

5、ackdrop,investors should look to cap-ture the attractive yields offered in segments such as high-investment-grade bonds and quality stocks.And if early economic indicators start to bottom,then cyclical opportunities should be on your radar screens too.In this Investment Guide,we aim to help you navi

6、-gate through the investment environment that we expect to unfold in 2023.We hope that the year ahead will be free of disruptive surprises.If it is not,then rest assured that we will be here to help you to adjust your investment approach.In the meantime,we wish you a successful year and thank you fo

7、r your continued trust in Julius Baer.Yours faithfully,4ContentsEditorial 3A brief review 5The economic picture 10Attractive yields in fixed income 16Equities after the valuation reset 20Additional sources of return 27Further information 34Important legal information 37A brief review2022 was an annu

8、s horribilis for the financial mar-kets.The traditional 60%equities/40%bonds port-folio suffered unusually,returning between-20%and-15%.This was exceptional,given that since 1901 it has delivered between 0%and 20%on average.As for asset classes,it did not seem to matter which ones you invested in:al

9、l but a few ended the year in negative territory.Amid the geopolitical and weather events,oil&gas stocks provided some relief to those invested,and floating-rate notes offered some com-pensation to bond investors as interest rates rose globally.A brief reviewMarket review2022 was a year in which alm

10、ost all assets lost value in sync a relatively rare occurrence.On top of this,the year was characterised by a second peculiarity the economic mix that financial markets faced.After the valuation reset,we expect a further cooling down in growth and inflation for 2023.Equity regions2018201920202021202

11、25-year annualisedSwitzerland-8.03%29.98%1.07%19.51%-17.50%4.25%Eurozone-10.57%26.05%-3.32%21.54%-9.94%4.30%USA-5.04%30.88%19.70%25.75%-20.31%8.56%Japan-15.15%18.48%10.23%12.93%-6.45%2.89%UK-8.82%16.37%-13.93%15.13%5.33%3.47%China-19.45%24.34%29.49%-19.30%-21.43%-4.54%Emerging markets ex.China-12.43

12、%16.23%12.55%7.87%-19.65%0.37%The bestJust one of the main equity regions ended 2022 in the green the UK.All this despite the effects of Brexit,a total of three prime ministers,and a period of chaotic governing and economic ructions.It was,however,the UK equity markets value tilt,with above-average

13、exposure to commodity-related stocks,that allowed it to outperform.The worstThe US and emerging markets including China per-formed worst,but equity markets globally came under immense pressure,driven by a sharp tighten-ing in liquidity conditions due to sky-high inflation rates and geopolitical jitt

14、ers.The sell-off in devel-oped markets can be entirely attributed to a decline in valuations,while zero-Covid measures meant uncertainty for Chinese stocks.7A brief review The bestDefensive sectors were the outperformers in 2022,benefiting from the rotation out of cyclical stocks amid the challengin

15、g macroeconomic backdrop.While defensive sectors might continue to hold up well in early 2023,we expect them to underperform into the recovery in the second half of the year.The worstGrowth stocks sold off nearly 30%in 2022.This comes as little surprise in a year when the only direc-tion of interest

16、 rates was up and therefore not good for companies planning quick expansions and,in many cases,only promising sustainable profits far into the future.Equity styles201820192020202120225-year annualisedQuality-5.50%36.08%22.20%23.24%-22.16%8.96%Value-10.78%21.75%-1.16%18.42%-6.62%4.12%Growth-6.74%33.6

17、8%33.83%19.33%-29.56%7.43%Large cap-7.75%27.73%15.94%20.04%-18.31%6.57%Small cap-13.86%26.18%15.96%12.09%-19.07%3.46%Cyclicals-9.83%31.54%19.30%25.80%-22.40%6.90%Defensives-4.94%21.69%1.60%21.70%4.20%8.60%High dividend-7.56%23.15%-0.03%12.07%-4.76%4.66%Equity sectors201820192020202120225-year annual

18、isedInformation technology-2.60%47.55%43.77%28.21%-31.26%13.17%Materials-16.92%23.35%19.93%12.19%-9.97%4.99%Oil&gas-15.84%11.45%-31.46%37.71%43.77%5.63%Industrials-14.54%27.77%11.68%14.10%-12.79%4.29%Communications-10.02%27.39%22.98%13.02%-37.17%0.33%Healthcare2.52%23.24%13.52%15.52%-4.54%10.19%Fina

19、ncials-16.97%25.51%-2.84%24.80%-10.62%3.06%Consumer cyclical-5.51%26.57%36.62%15.67%-34.61%5.13%Consumer defensive-10.10%22.80%7.79%9.85%-6.13%4.78%Real estate-6.36%22.96%-4.99%24.11%-24.50%1.06%Utilities1.97%22.53%4.76%6.09%-4.11%6.50%The bestAs the Ukraine war became more entrenched and fears grew

20、 of a looming energy crisis,it is no surprise that the stand-out sector of 2022 was oil and gas.Not only was the sector alone in closing the year in the green,but it did so in spectacular fashion mov-ing up by more than 40%.The worstCommunications,consumer cyclicals,and IT had a very bad year.The sh

21、arp increase in real interest rates put pressure on high valuations and saw invest-ors grow concerned about the potential for future earnings.Nevertheless,despite IT being one of the worst performers of 2022,it has still delivered the best 5-year annualised return.A brief review 8Fixed IncomeDevelop

22、ed markets201820192020202120225-year annualisedUS government bonds0.86%6.86%8.00%-2.32%-11.65%-0.03%US TIPS-1.26%8.43%10.99%5.96%-11.38%2.16%High investment grade-3.54%6.33%11.89%-7.17%-22.89%-4.13%Low investment grade-3.90%12.52%11.56%-4.42%-17.92%-1.24%High yield-4.06%12.56%6.91%0.36%-12.51%0.35%U

23、SD floating-rate notes1.63%4.28%1.38%0.52%1.33%1.82%Emerging markets201820192020202120225-year annualisedEM hard currency-3.02%12.13%7.02%-2.48%-16.24%-1.09%EM local currency-3.40%9.47%5.29%-2.53%-8.23%0.07%Source:Bloomberg Finance L.P.,Julius Baer Investment WritingNote:Please see the Further Infor

24、mation section of this Guide for more details on the indices used.Annual performance numbers are in USD,except for equity regions that are calculated in local currency.EM=emerging markets;TIPS=Treasury inflation-protected securities.Past performance is not a reliable indicator of future results.Retu

25、rns reflect all ongoing charges excluding transaction fees.All investments have inherent risks,and investors may not recover their initial investment.The bestNatural gas was the top performer of 2022.Unlike in Europe,where the price was driven higher due to geopolitical concerns,US prices mainly ral

26、lied because of the hot summer and strong economy pushing up power and thus gas demand.Despite the rally,performance peaked in the summer and subse-quently declined by 50%.The worstAluminium initially rallied to new record highs on fears that the war in Ukraine and the sanctions on Russia would curb

27、 supplies.As this did not happen,market participants started to worry more about Chinas struggling property market,pushing down prices for the year.Commodities201820192020202120225-year annualisedBrent crude oil-19.55%22.68%-21.52%43.61%10.45%5.14%US natural gas-0.44%-25.54%15.99%49.43%19.97%8.66%Go

28、ld-2.14%18.87%24.42%-5.74%-0.13%6.88%Silver-9.36%15.32%47.38%-15.61%2.95%6.99%Platinum-14.80%22.05%10.71%-14.02%11.33%2.82%Aluminium-19.28%-1.84%10.61%34.93%-16.18%0.80%Copper-17.43%3.32%25.97%25.65%-14.10%3.01%Iron ore-0.22%28.70%70.26%-27.81%-1.08%9.31%The bestFloating-rate notes were the only pla

29、ce to hide given the shield that they provided against the rise in interest rates triggered by the aggressive tightening cycle embarked upon by central banks.It is therefore no surprise that they are the only segment to end 2022 in the green.The worstFixed income markets across the board had a shock

30、-ing year.Longer-duration bonds suffered the most which meant higher quality investment grade took the biggest hit given their longer average matu-rity.Rate hikes,higher bond yields,and wider credit spreads caused a meltdown,particularly in the sec-ond and third quarters.9A brief reviewScoring our c

31、allsIn this section,we show how our key investment ideas for year-end 2022 played out until 31 December 2022.TopicInvestment ideaReturn*The big pictureFixed income moderate credit risk-0.29%Barbell approach to stocks value stocks-4.83%Barbell approach to stocks growth stocks-6.20%Stocks with a defen

32、sive tilt US stocks-2.65%Stocks with a defensive tilt high-dividend US/Asia 3.25%Stocks with a defensive tilt healthcare stocks7.81%The future is greenClean Energy0.01%Future Mobility0.01%Environment0.27%Ready to rumbleStocks set to recover information technology-11.42%Stocks set to recover digital

33、health7.99%Investing mattersFixed income quality high yield2.70%Fixed income deeply subordinated bank debt1.13%Stocks to own-3.04%Pets an unbroken trend-6.73%Macro hedge fund strategies-0.24%Source:Julius Baer Investment WritingNotes:*Return numbers are for the period between 1 September 2022 and 31

34、 December 2022.The performance of our calls was eval-uated on the basis of the performance of a representative benchmark index that we consider the best fit to our call.Certain calls may not be reflected due to the lack of an appropriate benchmark.More information on these benchmark indices is shown

35、 in the Further Information section of this Investment Guide.Past performance is not a reliable indicator of future results.Returns reflect all ongoing charges excluding transaction fees.All investments have inherent risks,and investors may not recover their initial investment.The economic picture20

36、23 will likely be about the cooling down of recent trends,with both growth and inflation rates expected to slow as monetary policy normalisation takes its toll and pandemic-related constraints ease.Nonetheless,strong employment trends and divergent regional dynamics should prevent a global recession

37、.While Europes energy supply risks have eased meaning-fully,such concerns may persist for some time.In addition,our CIO examines why the FAANMG stocks fell from grace in 2022 and which equity seg-ments might take the crown going forward.11The economic picture The great cool-down2022 was an exception

38、al year.Economic growth declined and inflation skyrocketed.Most assets lost value.2023 should see a major cool-down,with growth slowing and inflation slowing even more.2023 the year of the cool-downPredicting major shocks such as the Covid-19 pan-demic,the invasion of Ukraine,and the subsequent war

39、is one thing.Drawing the right conclusions ahead of correctly predicted events is yet another.This is the key lesson in humility for investors after the most recent crises.Looking ahead,and in all modesty,we can only state that,barring any further once-in-a-generation shocks hitting the system now,i

40、nflation pressure should decline markedly in the first half of 2023 and then soften further.There is no doubt that global growth will slow in 2023,most likely to below 2%from more than 3%in 2022,but this is still in positive territory and there-fore does not signal a global recession.Although there

41、are plenty of concerns about a recession materialising,we do not expect one in the year ahead.We see strong employment trends in many industrialised countries,which should keep their economies afloat,and regional dynamics are likely to remain very divergent.This means that,for example,a recovery in

42、Asia spurred by tailwinds from Chinas reopening would be supportive of European growth prospects and also compensate for a softening of growth in the US,thus reducing the odds of a glob-ally synchronised recession.Inflation and growth cooling down in 202320235.1%Inflation20228.5%20231.9%20223.3%Grow

43、thSource:Julius Baer Investment&Wealth Management SolutionsNote:2023 figures reflect the Julius Baer Economic Research expectations.The economic picture 12In line with the usual time lag between inflation rates and overall economic activity,we expect high global inflation rates to start coming down

44、in 2023,easing notably in the first half of the year and then soften-ing at a slower pace throughout the remainder of the year.This will be achieved by commodity prices cooling down,supply-chain bottlenecks easing,and a normalisation of the pent-up demand that we wit-nessed after the pandemic.Ultima

45、tely,global infla-tion should cool down from more than 8%in 2022 to 5%in 2023.In terms of monetary policy,central-bank tighten-ing should slow down considerably in the first half of 2023,and there is even a chance of rate cuts in the US in the second half of the year.These factors combined suggest t

46、hat investors now have the opportunity to start locking in attractive yields while looking for assets that should bene-fit from a recovery as the year progresses and into 2024.Likely impact on the US dollarWe have just witnessed one of the longest and strongest bull markets for the US dollar since i

47、t became the global reserve currency after World War II.With the interest-rate tailwinds start-ing to ease,the strength of the dollar seems to have peaked and it may well weaken from here.On the flip side,the weakness of some emerging market currencies versus the US dollar already started to dissipa

48、te in the second half of 2022,mak-ing some of the commodity-backed emerging mar-ket currencies look more attractive to risk-tolerant investors.One of the longest US dollar bull markets is running out of steam60657075808590951002010201220142016201820202022IndexUS dollar trade-weighted index Source:Bl

49、oomberg Finance L.P.,Julius Baer Economic ResearchNote:Past performance and performance forecasts are not reliable indicators of future results.The return may increase or decrease as a result of currency fluctuations.The economic pictureA word or two on the energy situationEuropean energy markets re

50、main nervous,but supply risks are minimal,which means that energy prices should ease further,and,as a result,Europe should see a pronounced softening of energy-related economic headwinds.The globally available pool of natural gas is sufficient for Europe to fully compensate for Russias supply cuts,n

51、ot only because of Asias pivot to coal,nuclear,and renewables,but also owing to Chinas economic stagnation.We believe that the energy markets should offer further inflation relief,as opposed to inflation pain,since it is becoming increasingly clear that the drivers at play are cyclical rather than s

52、tructural in nature.Interested?Please contact your Julius Baer representative for further information on products that best suit your needs.The economic picture 14Special1FAANMG:Meta Platforms(formerly Facebook),Apple,Amazon,Netflix,Microsoft,and Alphabet(formerly Google).FAANMGs at a crossroadsOn t

53、op of defining the prevailing macroeconomic trends,our yearly Secular Outlook seeks to identify the market-leading themes of the unfolding decade.If historical evidence is anything to go by,the winners of the past decade are unlikely to be the winners of the cur-rent decade.The combined market capit

54、alisation of the so-called FAANMGs1 rose from USD 1 trillion at the start of 2013 to over USD 10 trillion by the end of 2021.At their peak,in the summer of 2020,they accounted for over 25%of the S&P 500 index.In this way,the six US technology giants established themselves as a true stand-alone asset

55、 class,and their rise was one of the defining trends of the previous decade.How-ever,after they have been at the forefront of share-holder value creation over the past years of secular disinflation,we are starting to see a gradual shift,marking the end of the FAANMG supremacy.This raises two major q

56、uestions:What role will the FAANMGs play going forward?The business models of some of the FAANMG companies are under serious pressure,which raises questions about their future viability as we enter the next phase of the information age.The FAANMGs urgently need to focus on the spiralling costs in or

57、der to maintain their relevance as building blocks in portfolios.While some members of the group are unlikely to be able to reverse their current negative profitability trend,others should succeed in trans-forming from secular growth engines into mature quality companies.Those that can manage this t

58、ran-sition successfully will maintain their place in invest-ors portfolios.Who will be the new growth champions in the future?In our view,the new growth champions could emerge from those companies that manage to bring the digital revolution into the physical world.After the internet,this is the next

59、 step in digital disrup-tions.This space is quite large,from robotics and automation to supply-chain optimisation,but our preferred theme remains the disruptions in the life-science space,including digital healthcare and biotechnology.Secular OutlookThe end of the FAANMG supremacy is just one of the

60、 topics that we cover in our Secular Outlook.To learn more about the key macroeconomic and capital-market trends that we believe will shape this decade,please read the latest edition of our Secular Outlook BEYONDMARKETSNot enough time to read investment research?We hear you.Tune in to our Beyond Mar

61、kets podcast series to get our expert views and strategic inputs on market developments andinvesting trends from around the globe.APPLESPOTIFYAttractive yields in fixed incomeThe end of financial repression means that fixed income assets across the credit-rating ladder now offer positive real yields

62、 again.We therefore think that now is a good time to remove some credit risk while extending duration risk.With regard to emerging market debt,several drivers have become more positive,allowing for a gradual return to quality emerging market bonds.During the year,there might come a time where the ri

63、sk/return balance advocates moving into the higher credit-risk brackets again.Interesting opportunities may also arise in selected BB rated bonds.17Attractive yields in fixed income Fixed income strategy adjustmentsDecrease credit riskIncrease duration riskSource:Julius Baer Investment&Wealth Manage

64、ment SolutionsMove up the credit-rating ladderFollowing the central banks dramatic policy changes last year,the pool of negative-yielding global debt reached zero in early January 2023.At the end of 2021,it stood at over USD 11 trillion.Clearly,there is income in fixed income again and investing in

65、high-investment-grade debt now generates a decent return.High-investment-grade bondsHigh-investment-grade bonds are now much more attractive following the significant repricing of bonds last year.While we do not believe that riskier seg-ments of the bond market have become weaker,the end of financia

66、l repression means that interest rates have moved significantly higher,and conse-quently fixed income investors can now move up the credit-rating ladder,i.e.invest in higher-quality bonds,and still get decent returns.Higher-rated bonds have a longer average maturity,and thus in moving towards higher

67、-quality debt,investors are effectively removing some credit risk and extending the duration risk.Extending the duration riskWith the yield curve currently still inverted,investors may ask themselves what the appeal of longer-duration assets is when the yields on offer at the short end of the curve

68、are higher.In our view,it is a matter of positioning for rate cuts,which should particularly benefit longer-duration bonds.It is important to look ahead somewhat and consider how redemptions will be reinvested.As the name implies,short-maturity bonds provide a certain yield over a short time horizon

69、,while longer-dated bonds lock in yields for a longer period.As we get closer Attractive yields in fixed incometo the end of the tightening cycle,bond investors face increasing reinvestment risk i.e.the risk of not being able to reinvest funds from maturing bonds at attractive conditions.By graduall

70、y extending the average duration in a bond portfolio now,the sensi-tivity to interest-rate changes can be diversified and the reinvestment risk for bonds that mature over the next two years can be reduced.The exact level of targeted duration will always depend on an individual investors circumstance

71、s and investment objectives.Furthermore,due to the volatility of yields,it would be appropri-ate to increase the average duration of a portfo-lio gradually through reinvesting redemptions into longer-duration bonds.Those who are comfortable with some volatility in their portfolio could start to add

72、exposure to bonds with a duration of five to seven years.It should be noted,however,that it would not necessarily be appropriate for investors to hold these longer-duration bonds until maturity.As a result of the factors outlined here,we now have an Overweight rating on USD high-investment-grade bon

73、ds.We would not sell high-yield bonds at the current spread levels but rather reinvest some redemptions of high-yield bonds into high-grade corporate bonds(AA or A grade).We are more cautious about adding dura-tion to EUR bonds,as the rate-hiking cycle is more advanced in the US,and US inflation sho

74、ws clearer signs of rolling over than in the eurozone.Conse-quently,risk-free yields are likely closer to their peak in the US,which implies more attractive upside potential than for EUR bonds.Low-investment-grade bondsWe also maintain our Overweight rating for USD and EUR low-investment-grade corpo

75、rate debt with shorter maturities.Such bonds may complement safer and longer-duration assets.Furthermore,a portfolio may benefit from the higher coupons that these bonds offer,and the default risk for this seg-ment is low.19Attractive yields in fixed income Emerging market bondsWe would also conside

76、r adding emerging mar-ket bonds to a portfolio.Our fixed income analysts now see many drivers becoming more supportive for emerging market bonds.The gradual reopening of China should bode well for the countrys bonds,which make up a considerable part of emerging mar-ket bond indices.Emerging market e

77、conomies that rely on Chinese demand are also set to benefit now.Further tailwinds should be provided by expected rate cuts in the US in 2023,which should curtail the US dollars strength.As a result of these factors,we upgraded emerging market hard-currency bonds to Overweight in December.However,we

78、 would keep a quality bias within emerging market hard-currency debt.Look out forThinking a little further ahead,in the scenario of a recovering global economy,the time may come when it would be appropriate to move back down the credit-rating ladder,i.e.in terms of quality.In such a scenario,additio

79、nal yield could be earned from some BB rated bonds,where company-specific developments point towards an upgrade by the rat-ing agencies.Overall,we anticipate that volatility will remain in the first few months of 2023,but once we have more clarity around the future paths of the US Fed-eral Reserve a

80、nd other major central banks,financial conditions should stabilise.Interested?Please contact your Julius Baer representative for further information on products that best suit your needs.Equities after the valuation resetBased on our expectation of slowing global growth and lower inflation in 2023,a

81、s the new year begins,our preference within equities is for defensive quality stocks with a focus on the US.During the year,a shift towards a more global,cyc-lical stance will be warranted to be well positioned to benefit from a recovery in 2023 and into 2024.Thus,2023 could well be the year of two

82、very dif-ferent market environments,where some good old-fashioned equity repositioning is required.21Equities after the valuation reset Defensive quality first,cyclicals next2022 will go down in history as the year in which equities fell not because of a sharp fall in earnings,but rather due to geop

83、olitical jitters and a drop in equity valuations due to higher interest rates.So,what should investors expect from 2023?At the outset of the yearAs we enter 2023,global growth is slowing and inflation remains elevated.Thus,companies are con-tinuing to reduce their earnings expectations for this year

84、.This favours defensive quality stocks,in our view.Some of their attributes are strong product dif-ferentiation,quality balance sheets,high free cash flows,and strong customer loyalty.However,our focus is not purely on quality but rather on compa-nies with defensive business models,especially given

85、our expectation of slower growth ahead.Taking a closer look at the sector level,one can observe that many high-quality companies can be found within healthcare and those consumer goods that are required throughout an economic cycle.In fact,healthcare remains our most preferred defensive sector,with

86、a focus on large-cap phar-maceutical companies(including biotech).This segment consists of many high-quality compa-nies whose superiority is evidenced by sustainable competitive positioning and the high demand for their products in both good and bad times.Thus,large-cap pharmaceutical companies have

87、 strong pricing power.Moreover,given the sectors low sen-sitivity to input costs,still high inflation is less of an issue.However,not all healthcare subsectors are Our equity playbook for 2023Position defensively first.and then take the offensive with cyclicalsSource:Julius Baer Investment&Wealth Ma

88、nagement SolutionsEquities after the valuation resetdefensive in nature.There are also cyclical segments,such as MedTech and life-science tools,and these may well become the more interesting segments as the year progresses.In terms of regional preferences,our focus is ini-tially on US equities given

89、 that growth in the US is expected to hold up relatively well as compared to Europe,and we expect further interest-rate increases in the eurozone as well.As the year progressesIn our Market Outlook Year-End 2022,we high-lighted that opportunities in equity markets could open up before the economy re

90、aches a low.In fact,what is needed is a positive change,but what could this look like in 2023?As the year progresses,it could become more and more apparent that the cooling in economic activity is also cooling down inflationary pressures.This portends a positive cyc-lical dynamic for equities,as it

91、should allow cen-tral banks to back-pedal on some of their monetary tightening.As economic activity begins to stabilise,this should open up opportunities in cyclical markets across the globe,e.g.export-dependent Euro-pean equities,with their positive exposure to global growth;small-cap stocks,which

92、tend to be more cyclical than the more diversified large-cap stocks;and bottom-up cyclical opportunities across varied sectors,such as automotives,machinery&equip-ment,and logistics.VideoPlease watch our video on the healthcare sector,where Mathieu Racheter,Head of Equity Strategy,explains why the s

93、ector offers compelling opportunities throughout 2023.23Equities after the valuation reset What about emerging markets?For those looking for opportunities beyond devel-oped markets,India,with its strong underlying growth trends and large domestic market,remains a long-term winner.Furthermore,in Sout

94、heast Asia,corporate earnings are resilient and there is a high proportion of local-currency-denominated debt,which means that the region is less exposed to rising US interest rates.It is thus a worthwhile considera-tion for those looking for some diversification.As is the case for developed markets

95、,cyclical oppor-tunities are likely to arise in emerging markets throughout the year as well.First and foremost,Latin American equities,with their highly cyclical sector composition,come to mind.Overall,emerging mar-kets could well make a comeback in 2023,since they trade at a discount and benefit d

96、isproportionately from a growth pickup,stable commodity prices,and a weaker US dollar.In fact,a persistently weaker greenback could be an all-clear signal for emerging markets,as it would show that global liquidity is on the rise again.Developments in China could also shape the year.Interested?Pleas

97、e contact your Julius Baer representative for further information on products that best suit your MOVINGMARKETSWant to know whats moving markets today?Tune in to Moving Markets,our daily podcast series where our experts discuss the latest market developments and put the headlines in perspective to s

98、et you up for the coming day.SPOTIFYAPPLEGOOGLE25Equities after the valuation reset SpecialChina reopening:A major wild card for global markets in 2023After nearly three years of the worlds strictest Covid-19 containment measures,with the effects reverberating through the global supply chain,includi

99、ng those sectors reliant on Chinese business,the Chinese economy is beginning to see some relief.So what now?Here is what we expect.As the adage goes,it is darkest before the dawn.This may be true for China as well,but it is currently debatable.On the one hand,the Chinese govern-ment is taking steps

100、 to reopen international borders and relax quarantine restrictions,but on the other hand,the country is experiencing a major wave of Covid-19 infections.The reopening measures should boost travel,trade,and domestic consumption,but it remains to be seen whether the health system can keep up.With many

101、 unknowns still in play,Chinas reopening will most likely be one of the major drivers of asset prices in 2023.Predictions are hard to make at this point,but assuming no major escalation of the Covid-19 situ-ation,we anticipate moderate economic growth in China in 2023 and believe that policy stimulu

102、s will allow the market to extend the year-end rally of 2022 into the early part of this year.In fact,Chinas policymakers will stay accommodative as long as the economy is weak.Ironically,bad economic data may actually be beneficial for the market.As indicated at the recent annual Central Economic W

103、ork Conference,promotion of growth will be the governments top priority for 2023.The focus will be on expanding domestic demand,promoting the recovery of consumption,and reviving confidence.Further,policymakers aim to stabilise the troubled property sector but remain worried about excessive debt and

104、 are unlikely to completely reverse their stance.With regards to Covid-19 policies,it is clear that the priority has shifted to controlling the num-ber of severe cases rather than the overall number of infections.In this context,value and cyclical stocks may lead the rally,with stocks in the interne

105、t and property sectors likely to outperform.Meanwhile,China will continue to push its long-term initiatives.Should the economy recover and gather strength in the later part of this year,we may see some reform policies being rolled out.The equity market may then return to a fat and flat trading range

106、,i.e.an overall sideways trend with large moves that may provide trading opportunities.Investors should focus on thematic and sector opportunities rather than overall market returns.We reiterate our long-term preference for the environment,mass consumption,and smart manufacturing.Equities after the

107、valuation reset 26SpecialNext Generation:Preparing for the next cycleThe aim of our Next Generation investment philosophy is to identify global megatrends and transform them into tangible investment themes.While thematic investments suf-fered due to the valuation reset last year,some have been bette

108、r shielded.We take a closer look and outline how to be best positioned while preparing for the next cycle.The focus within our Next Generation themes is on companies in structurally growing industries,and we select those with a competitive advantage,as they are most likely to benefit from the identi

109、fied trends.The emphasis is primarily on profitable growth com-panies.In fact,this helped to partly shield our Next Generation themes during the sell-off last year,since non-profitable thematic growth companies were the ones that experienced some of the worst losses.In fact,2022 was about a repricin

110、g in the market for any kind of investment with a longer-term invest-ment horizon,as interest rates rose relentlessly.The resulting drop in valuations means that many of our Next Generation themes are now trading below their pre-pandemic valuation average.At the same time,the long-term structural tr

111、ends that underpin our Next Generation thematic themes were not fundamentally altered last year.Rather,it was quite the opposite:in some cases,events in 2022 actually strengthened the investment case for certain themes.With this in mind,the time has come to prepare for the next cycle for Next Genera

112、tion thematic invest-ments.As 2023 begins,we will thus focus on the fol-lowing three Next Generation themes:Energy TransitionThe energy transition to renewable energy produc-tion is shifting up another gear,as Europe is deter-mined to reduce its dependency on oil and gas from Russia.Meanwhile,cost i

113、nflation looks like it is under control.Within this theme,a somewhat unexpected beneficiary this decade could well turn out to be copper,as it is a critical component of the batter-ies that drive electric cars.This should translate into strong demand for the metal just as mine-supply growth is slowi

114、ng.Shifting LifestylesThe trends of an ageing society,as well as scientific medical and digital innovations,are ongoing,and after the valuation reset of last year,the theme is attractively valued.In particular,the subthemes of Digital Health,Extended Longevity,and Genomics look particularly promisin

115、g.Future CitiesInvestments continue to make their way into the buildout of more digital cities and a more circular economy,making this among the least cyclical of the Next Generation themes.Additional sources of returnGiven the high volatility in public markets,invest-ors can consider alternative in

116、vestments,such as pri-vate market investments and hedge funds.These are ways to access additional sources of return and have the potential to improve the risk/return profile of a portfolio.Private market investments provide an important gateway to a growing set of real assets and can offer investors

117、 different premiums as compared to tradi-tional investments.Hedge fund strategies can utilise the rich opportun-ity set arising from macroeconomic volatility and external shocks due to their ability to invest in various asset classes and to go both long and INVESTMENT INSIGHTS APPMarkets are always

118、moving.So are busy investors.Enjoy our latest award-winning research and market news from around the world.APPLEGOOGLE29Additional sources of return Consider alternative investmentsInvestors could consider alternative investments,such as hedge funds and private market investments,as additional sourc

119、es of return in a well-diversified portfolio.Our experts give their insights on these investments and on how investors might benefit from them.Active management is set to play a greater role in adding value for investors in 2023 and beyond.As part of a well-diversified portfolio,alternative invest-m

120、ents such as hedge funds and private market investments can provide additional sources of return for investors.Through these asset classes,invest-ors can access opportunities that are not available in public markets,and the breadth of the asset class also means that there are opportunities throughou

121、t the cycle.However,there is much more variation in returns across different managers in the alterna-tive investment space,and thus selecting special-ists with the right experience and skillset to manage these investments is crucial.We put five questions to Julius Baers Simon Ibbitson,Head of Privat

122、e Markets Fund Distribution,and Adrienne Jaersvall,Head of Fund Advisory,to find out more.Characteristics and objectives of alternative investmentsDiversify portfoliosReduce volatilityHave low correlation to market movementsOffer the opportunity toinvest in innovative strategiesHave the potential to

123、 provide attractive risk-adjusted returnsAdded valuein portfoliosSpecialistadvice neededAre more difficult to implementRequire higher levels of oversightRequire active management and often charge a performance feeHave more restricted liquidity termsCan be costlySource:Julius Baer Investment&Wealth M

124、anagement SolutionsAdditional sources of returnPrivate marketsInterview with Simon Ibbitson,Head of Private Markets Fund Distribution at Julius Baer1.What are the main characteristics of private markets and how do they differ from investments in public securities?Private markets provide investors wi

125、th access to non-publicly listed assets,covering private equity,private real estate,infrastructure,private debt,and even natural resources.Private equity is the largest subset of the private market asset class and refers to investments in non-publicly listed companies.Private equity investments are

126、most commonly made through closed-ended funds,which typically have a lifetime of around ten years.Rather than investing the full amount at the beginning,a private equity investment starts with a capital commitment.This is then called for investment by the managers,who will deploy it over what is kno

127、wn as the invest-ment period,which usually lasts three to five years.The investments are then held for another three to five years,whilst the latter stage of the funds life is used to create value in the underlying positions and prepare the assets for an exit.Returns only materialise when the underl

128、ying investments in a fund are exited.Private equity is an illiquid asset class and not one where you can buy today and sell a few days later,as would be possible with public equities.One funda-mental difference between private equity funds and mutual funds is that the decision to buy and sell the u

129、nderlying investments is effectively contracted out to a private equity fund manager.There is a second-ary market for private investments,where there is some degree of liquidity,but selling in the secondary market may mean having to accept a discount to the net asset value,depending on the market en

130、viron-ment at the time.Other differences include the availability of infor-mation.There is a higher degree of information asymmetry in private markets given the nature of non-listed companies.However,the volatility of pri-vate market assets tends to be much lower than for their listed counterparts,p

131、rimarily because the assets are valued less frequently,i.e.on a quarterly basis.2.What about the illiquidity aspect often associ-ated with private markets?Well,let us consider whether illiquidity is actually a drawback I think the fixation of having a wholly liquid or actively tradeable investment p

132、ortfolio in the belief that such a portfolio is superior is a little misguided.It is important to have a blend.So,from a portfolio management perspective,it is a balancing act,and when financial planning allows,an alloca-tion into illiquid investments with potentially higher return expectations can

133、make sense.In my view,the illiquid nature of this asset class and the fact that the buying and selling decisions are contracted out are perhaps the most appealing aspects of private market investing.The lack of liquidity creates more stability,and it is not possible for emotionally driven,irrational

134、 short-term decisions to come into play.31Additional sources of return 3.Which areas within the private equity space are particularly attractive at the moment and why?This is a question we often hear,and my first response is that we tend not to try and time the pri-vate equity business with whats ho

135、t and whats not.We tend to look at trends;but what is interesting today might pass in,say,the next 12 months,and another trend may appear.One can do this with better effect in public markets,but not so much in private ones.A commitment today is an investment tomorrow,and the capital may well be inve

136、sted over several years,in an ever-changing economic and political environment.That said,some strategies are more applicable than others at different times.For example,I think 2022 will prove to have been a prodigious performance year for private equity secondary managers,i.e.those firms that buy fu

137、nd interests from existing owners who are looking to sell for whatever reason.Given the deterioration in all asset prices,2022 was a buyers market,and some very attractively priced assets have been acquired by these secondary managers.The illiquid nature of this asset class is perhaps one of the mos

138、t appealing aspects of private market investing.4.There are some concerns about a lack of trans-parency in the private market industry.What are your thoughts on this?Well by nature,there is information asymmetry in the private markets space.Companies do not pub-lish regular reports and there is less

139、 media cover-age.So inherently,there is less public information in private market investing.However,it is a myth that public companies are more transparent because daily share price moves can be observed and quar-terly(or at least half-yearly)reports are published there is actually only a limited am

140、ount of infor-mation that managers of public companies do share.With private companies,on the other hand,there is a large amount of information that private equity managers can share with investors about the companies in which they are invested,unless the information is commercially sensitive.5.Why

141、should investors consider making an allo-cation to private market investments?I believe that it is appropriate for investors to con-sider making an allocation to private markets,because these investments would complement public-market investments within a portfolio.Of course,each individual investor

142、s objectives and risk tolerance must be considered,but in my view,the growth of private capital and the important role that this plays in successful economies fostering inno-vation,job creation,and generating profitability are just too big to ignore.Private markets can increase diversification in a

143、port-folio,as they are typically not highly correlated to other asset classes and in theory offer different pre-miums(e.g.illiquidity and information asymmetry premiums)to expected base returns.Moreover,they offer access to opportunities and companies that are not available in public markets.It is a

144、lso important to note,however,that the vari-ation in returns in private markets is much greater than in other asset classes,so manager selection is key.A deep and experienced skillset is required to source,acquire,manage,and exit these investments,which is why investors will typically seek exposure

145、to private markets through closed-end private equity funds that are managed by well-experienced fund managers.PodcastListen to the podcast with Simon Ibbitson and Michael Hornung-Moser on private markets.Additional sources of returnHedge fundsInterview with Adrienne Jaersvall,Head of Fund Advisory a

146、t Julius Baer1.What are the main characteristics of hedge funds,and how do they differ from investments in public securities?Hedge funds can generally make use of any and all investment opportunities at their disposal.These can range from public to private equities,govern-ment bonds to private credi

147、t,or commodity indices to niche energy contracts.The big differentiator to investments in public securities is that they can short such securities.This in turn means that they can,in theory,make money in an environment where asset prices fall in value.The second important point to note is that hedge

148、 funds can use leverage,meaning that they can bor-row money to increase the potential return of an investment.The other side of this coin,though,is that the risk of potential losses also increases,which is why the use of leverage should be carefully man-aged and generally limited.2.What about the il

149、liquidity aspect often associ-ated with hedge funds?Hedge funds liquidity profiles can range from daily liquidity to annual liquidity or less.The level of liquidity will depend on the underlying instruments traded.For example,funds with a focus on liquid large-cap equities will likely be much more l

150、iquid than funds that focus on distressed credit or a form of private market assets that have no secondary market.It is worth noting that there is an illiquid-ity premium attached to less liquid funds(which allow for client withdrawals once in a quarter)and that they tend to show stronger alpha gene

151、ration i.e.return generation beyond traditional market returns.This is related to the fact that information in less liquid markets can be so much more difficult to obtain and analyse.3.Which areas within the hedge fund space are particularly attractive at the moment and why?Interest in hedge funds c

152、ame roaring back with the return of volatility in late February 2020,after a 33Additional sources of return decade of lacklustre performance as a result of low volatility and a bull market that was partially fuelled by quantitative easing.Last year,hedge funds out-performed a traditional portfolio c

153、onsisting of 60%equities and 40%bonds by more than 10%,as many hedge funds were flat or positive for the year.With heightened volatility and a higher interest rate envi-ronment likely here to stay,we expect relative-value strategies to do well.These are old-school hedge fund strategies and investmen

154、t styles that thrived in the 1990s/2000s and were subsequently sup-pressed by the absence of volatility and low inter-est rates.Furthermore,their large unencumbered(unused)cash holdings are often invested in short-term Treasury bills,which allows them to gen-erate additional returns due to currently

155、 higher inter-est rates.Thanks to the end of quantitative easing,the return of heightened volatility,and higher interest rates,we see a very attractive opportunity set for relative value strategies.To give an example:Relative-value strategies can include fixed income instruments,equity instru-ments,

156、and more complex option strategies to ben-efit from volatility.Managers of a relative-value strategy try to predict a change in the relationship between the price or rate of two investment instru-ments.For instance,when a company announces that it wants to buy another company,the target companys sto

157、ck price typically increases but then settles below the price being offered.As the date of the closing of the merger deal edges closer,the stock price of the target company will move towards the offering price.The investor will buy that stock just as the deal is announced and hold the stock until th

158、e deal closes to sell it at a profit.That is a so-called merger-arbitrage trade.4.There are some concerns about a lack of trans-parency in the hedge fund industry.What are your thoughts on this?It is true that hedge funds often do not publicly dis-close their portfolio positions and the frequency at

159、 which they trade in order to maintain a competitive advantage.Our process includes extensive invest-ment and operational due diligence,which allows us to obtain a great deal of transparency.We continue to maintain a high level of visibility when speaking to hedge fund managers on a monthly basis.It

160、 is worth noting that today hedge funds are audited and registered with financial authorities such as the US Securities and Exchange Commission,and that administrator reports are available to us as well.5.Why should investors consider making an allo-cation to hedge funds?Goodbye QE,hello RV,is the s

161、tory in a nutshell.In our view,relative-value(RV)strategies continue to offer a very attractive opportunity set,due to the end of quantitative easing(QE)by central banks,the return of heightened volatility,and higher inter-est rates.They also typically display a limited market correlation and so the

162、y can do well in volatile mar-kets and protect clients portfolios.Interested?Please contact your Julius Baer representative for further information on products that best suit your needs.Further information35Further informationFurther informationPlease find below further information on benchmarks and

163、 indices used in the review sec-tion of this Investment Guide.Market ReviewEquity regionsRegionIndexEmerging markets excluding ChinaMSCI Emerging Markets excluding China Net TR USDSwitzerlandMSCI Switzerland NR CHFEurozoneMSCI Europe Net TR EURChinaMSCI China Net TR USDUSAMSCI USA Net TR USDJapanMSC

164、I Japan NR JPYUKMSCI United Kingdom NR GBPNote:NR=net return,TR=total returnEquity stylesStyleIndexQualityMSCI World Quality Net TR USDValueMSCI World Value Net TR USDGrowthMSCI World Growth Net TR USDHigh dividendsMSCI World High Dividend Yield Net TRCyclicalsMSCI World Cyclical Sectors TR USDDefen

165、sivesMSCI World Defensive Sectors TR USDSmall capsMSCI World Small Cap Net TR USDLarge capsMSCI World Large Cap Net TR USDNote:TR=total returnEquity sectorsSectorIndexInformation technologyMSCI World Information Technology Net TR USDMaterialsMSCI World Materials Net TR USDOil&gasMSCI World Energy Ne

166、t TR USDIndustrialsMSCI World Industrials Net TR USDCommunicationsMSCI World Communication Services Net TR USDHealthcareMSCI World Health Care Net TR USDFinancialsMSCI World Financials Net TR USDConsumer cyclicalMSCI World Consumer Discretionary Net TR USDConsumer defensiveMSCI World Consumer Staple

167、s Net TR USDReal estateMSCI World Real Estate Net TR USDUtilitiesMSCI World Utilities Net TR USDNote:TR=total return36Further informationFixed incomeSegmentIndexUS government bondsBloomberg US Treasury Total Return Unhedged USDUS TIPSBloomberg US Treasury Inflation Notes TR Index Value Unhedged USDD

168、M high investment gradeBloomberg Barclays Global Aggregate Aa TR Value Unhedged USDDM low investment gradeBloomberg Barclays Global Aggregate Baa TR Value Unhedged USDDM high yieldBloomberg Barclays Global High Yield TR Value Unhedged USDUSD floating-rate notesBloomberg US Floating Rate Notes TR Ind

169、ex Value Unhedged USDEM hard currencyBloomberg Barclays EM Hard Currency Aggregate TR Value Unhedged USDEM local currencyBloomberg Barclays EM Local Currency Government TR Unhedged USDNote:DM=developed markets,EM=emerging markets,TR=total returnCommoditiesCommodityFutureBrent crude oilGeneric 1st CO

170、 Future,ICE Futures Europe CommoditiesUS natural gasGeneric 1st NG Future,New York Mercantile ExchangeGoldGeneric 1st GC Future,Commodity Exchange,Inc.SilverGeneric 1st SI Future,Commodity Exchange,Inc.PlatinumGeneric 1st PL Future,New York Mercantile ExchangeAluminiumGeneric 1st LA Future,London Me

171、tal ExchangeCopperGeneric 1st LP Future,London Metal ExchangeIron oreGeneric 1st SCO Future,Singapore ExchangeNote:1st=front month futures contractScoring our CallsTopicBenchmark index usedFixed income moderate credit riskICE BofA 1-10Y US Corporate TR IndexBarbell approach to stocks value stocksMSC

172、I World 50%hedged to EURBarbell approach to stocks growth stocksMSCI ACWI Information Technology NR USDStocks with a defensive tilt US stocksMSCI North America NR USDStocks with a defensive tilt high-dividend US and Asia50%MSCI USA High Dividend Yield Index/50%MSCI AC Asia Pacific excluding Japan Hi

173、gh Dividend USD IndexStocks with a defensive tilt healthcare stocksMSCI ACWI/Health Care NR USDClean EnergyMSCI ACWI NR USD Future MobilityMSCI ACWI NR USD EnvironmentMSCI World Select Reduced Fossil Fuel USD IndexStocks set to recover information technologyJB NG Cloud Computing&AI IndexStocks set t

174、o recover digital healthJB NG Genomics IndexFixed income quality high yieldICE BofA Global HY Constrained TRFixed income deeply subordinated bank debtBarclays Benchmark Overnight USD CashStocks to ownMSCI North America NR USDPets an unbroken trendMSCI World TR EURMacro hedge fund strategiesHFRI Fund

175、 of Funds Composite IndexNote:AC=All Country,ACWI=All Country World Index,AI=Artificial Intelligence,BofA=Bank of America,HY=high yield,NG=Next Generation,NR=net return,TR=total returnImportant legal information38Important legal informationImprintAuthorsMichael Rist,Head Investment Content&Campaigns

176、,1Roman Canziani,Head Investment Writing,1Bernadette Anderko,Investment Writing,1Lucija Caculovic,Investment Writing,1Helen Freer,Investment Writing,1Jacques Michael Rauber,Investment Writing,1Jonti Warris,Investment Writing,11 This author is employed by Bank Julius Baer&Co.Ltd.,Zurich,which is auth

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178、h is authorised and regulated by the Swiss Financial Market Supervisory Authority FINMA.This content may contain infor-mation obtained from third parties.The information and opinions expressed were valid at the date of writing,and may be based on numerous assumptions and,thus,subject to change witho

179、ut notice.This content serves for infor-mation purposes only and is not intended as a legal,accounting,or tax advice,or an offer,or an invitation to buy or sell any financial instruments and/or products.Furthermore,it does not constitute a personal recommendation or take into account specific person

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185、S BAER GROUPHead OfficeBahnhofstrasse 36P.O.Box8010 ZurichSwitzerlandTelephone+41(0)58 888 1111Fax+41(0)58 888 The Julius Baer Group is present in around 60 locations worldwide,including Zurich(Head Office),Dubai,Dublin,Frankfurt,Geneva,Hong Kong,London,Lugano,Luxembourg,Madrid,Mexico City,Monaco,Mumbai,Santiago de Chile,So Paulo,Shanghai,Singapore,and Tel Aviv.01/2023 Publ.No.PU00971EN JULIUS BAER GROUP,2023Founding Signatory of: