A strong start to 2023

Chief Investment Officer's team
09 January 2023


  • All asset classes were in the green last week, with significant volatility and the outperformance of EM
  • Low ISM Services data and some moderation in wage growth support a slower pace in rate hikes
  • We start the year with a fresh positioning, emphasizing selectivity over pure directionality

After a terrible 2022, the new financial year couldn’t start in a better way. Stocks gained 3.4% in emerging markets and 1.8% in developed ones, while all segments of fixed income benefitted from lower risk and better risk appetite. Alternatives were also in the green.

It didn’t happen in a straight line. While EM assets had a positive bias on the reopening of China, Western markets were clearly driven by expectations about Fed’s policy. Hawkish tones initially put them under pressure, but a very low December ISM Services, alongside a slower than expected monthly gain in wages, both released on Friday, gave comfort on the way ahead: the Fed should slow the pace of rate hikes. Our house view is for two additional hikes of 25 basis points each in the coming months, before a pause as long as needed to bring inflation materially down. Timing is of relevance, as it will drive the amount of damage to the economy and to markets.

Macro risks will remain heightened in 2023 and beyond, with elevated unpredictability. There is however good news: safe yields are back, and the valuation of EM stocks is attractive. We have thus adjusted our portfolio positioning. Our Tactical Asset Allocation is broadly neutral on the major asset classes, with focus on selectivity. We look for income in Developed Markets, through cash, safe bonds, and dividend-paying stocks, while we seek capital appreciation in Emerging Markets, through an overweight in stocks, but an underweight in bonds. We are however prepared to be as nimble as ever as the opportunity set evolves. Volatility is another of our key convictions.

We will detail our views in our Global Investment Outlook publication and events in the coming weeks.

Cross-asset Update

Last week saw the worst services PMI print in the United States since 2009. Leading indicators like business confidence surveys continue to suggest that activity is deteriorating, while hard data is holding up relatively well, usually a customary pattern before the latter starts to catch up, earnings follow suits and investors panic about a possible recession. With the New Orders subcomponent at 45.2, services have joined manufacturing in contraction territory, and while bonds are stabilising following last year’s sharp losses, equities so far seem to have shrugged off the bad news. Investors may be holding the view that it is worth front-running the Fed, anticipating at least a pause in hikes, if not some outright easing in the end, assuming the outlook continues to worsen and inflation is negatively impacted. But we would caution against such an optimistic view.

While the true Fed reaction function in the end is unknown, this time the Federal Reserve seems to be boxed in by the fact that high inflation is disruptive to the highly leveraged economy of the United States, as well as overtightening is. So, Powell has no other option left than to walk the fine line of keeping rates high for long enough to suppress inflation, but not too high to avoiding a system crisis. Also, the view is widely held that the return to the easing of policy suffices for sustainable rallies to unfold. It does not, as historical records prove. During the 2000-2003 and 2007-2008 monetary cycles the Fed kept on easing, but markets turned only when the economy did turn. In Japan decades of easing failed to translate into renewed bull markets against a persistently deflationary backdrop. This time the economy cannot be expected to improve much before the recession overhang issue is resolved. In turn, if on the one hand US activity is proving to be resilient, on the other it is difficult to think that a recession will be avoided for good, given the sharpest tightening ever engineered by the Fed chair. In short, one is better off to assume that markets are likely to remain range bound, till a contraction hits, maybe later rather than sooner his year.

Valuations also play a role in gauging upside potential for equities in the longer run, though not specifically for the current year. And in relative terms DM equities are more expensive now versus bonds than in 2020, as real rates have been rising substantially ever since. So, in terms of earnings yields versus real bond yields, multiples come across as relatively unappealing. But the outlook for risk assets cannot be painted in such broad brushes either, as EM equities are now attractive based both on valuations and the positive macro impulse provided by the China reopening.

Overall, our call on risk assets clearly discriminates between developed and emerging markets, with a preference for the latter based on macros and multiples. EM assets will not save the day in view of their relative market cap, though, so caution is required till the DM outlook improves. And on this we think visibility may remain low across most of 2023.

Fixed Income Update

Last week was great for most of the asset classes. The US Treasury curve bull-flattened, with 10 and 30-year yields down by roughly 30 bps, giving up most of the increase that happened in December 2022. The key reason behind this is soft macro data giving investors hope that the Fed’s pause could be coming sooner. While Non-Farm Payrolls and the Unemployment Rate painted still a robust labor market, investors considered the deceleration in wage growth rate as positive. Average hourly earnings rose 0.3% from a month earlier and 4.6% from December 2021 after a downward revision to November. In addition, both the ISM Services Index for December and Factory orders for November came way below consensus estimates, pointing to the ongoing economic slowdown. The 10-year US Treasury yield ended the week at 3.55%.

Also, the crucial US CPI release is scheduled for this Thursday, with Economists anticipating a moderation to the print as consensus estimates point to 6.5% from the earlier 7.1%. Last week's Jobs Data and the CPI will provide much-needed insights into the upcoming Fed rate hike decision of 1st February.

Muddying the waters of the yield outlook is the familiar US Debt ceiling debate that has come to the fore post the election of house speaker Kevin McCarthy. McCarthy has won the necessary support by promising to strike down any Debt ceiling increase proposals unless promises of deep spending cuts accompany them. The Biden administration is against such "hostage-taking," in their own words. Currently, the total US Debt is just above $30 trillion, and the total ceiling is at $31.4 trillion. Therefore, US lawmakers need to lift the debt ceiling sometime after 1st July, when the $31 trillion limit will need to be raised to prevent a US default on debt payments. This situation brings back the memories of 2011 when the US was so close to defaulting on its debt that S&P downgraded the US Sovereign ratings by one notch.

Investors queued up to buy long-duration Investment Grade bonds on renewed growth concerns. We saw 35 deals priced last week with a total volume of $58 Bn and expectations of another $35 Bn to be priced this week from IG issuers. In contrast, the high-yield and leveraged loan primary markets stayed shut. In the GCC, Emirates NBD came out with a three-year AED-denominated senior bond, the first such bond from the UAE. Other D-SIB banks are expected to follow suit and issue AED bonds. These bonds should find a place in investor portfolios and provide an effective alternative to bank fixed deposits. These offer a long-term option to lock in the current high yields, while reducing the reinvestment risk that comes with putting cash in short-term deposits.

Equity Update

Global equities had a broadly positive week. The S&P 500 declined 19% in 2022 but started 2023 on a brighter note, up 1.4% as wage growth cooled, indicative abating of inflation. Treasury yields trimmed gains seen in 2022 amidst aggressive Fed’s tightening. European equities rallied, with inflation numbers finally in the single digits and promising euro zone business activity data. European equities rose 4.1% , with the FTSE 100 +3.4%. China equities added to a last quarter rally on continued strength in the tech sector, with signs that the regulatory crackdown may be easing, as well as ongoing optimism of a reopening following lengthy COVID shutdowns. However, demand remains weak and the recent surge in COVID cases in China has likely weighed on economic activity. UAE equities were range bound after last year’s upbeat performance and the market awaits more equity issuance.

Our fair value estimates for the main equity indices indicate higher upside EM equities, hence we start the year with an overweight EM and underweight DM positioning. Within DM, we prefer the US and within EM, India and the UAE.

Attention has shifted from inflation and the Fed to earnings growth and recession concerns. With peak rates looming and inflation softening but still above norm, profitability concerns have resurfaced. The earnings outlook has worsened. The Fed released the minutes from its December monetary policy meeting, unwavering in its campaign to combat inflation. Though rate rise expectations are not for a 75 bps hike at the next Fed meeting, the current 4.25 -4.5% Fed funds rate is taking its toll on company profits and consumer demand. The corporate earnings season will be dominated by guidance on inflation and the economic outlook . A recession seems to be top of mind. Companies have been tackling challenges around persistently elevated costs, rising interest rates and a surge in the dollar. A core question is just how long customers can bear higher prices as companies try to pass on elevated costs. Consumer spending slowed in November and retailers offered steep discounts – the latest is Tesla slashing the price of its cars. Recent earnings report a mixed picture. Nike had a favourable outlook. Companies facing higher input costs are laying off employees led by the big tech companies including Amazon, Meta and Salesforce. We estimate no earnings growth year/year for the S&P 500 in 2023.

For Q4 2022, the consensus estimated earnings decline for the S&P 500 is -4.1%, while revenue growth at +8%, but offset by margin contraction to 11.2%. Excluding Energy, S&P 500 EPS is expected to fall 5%. EPS estimates have been lowered for 4Q’22 by the largest margin (-6.5%) when compared against the 5, 10, 15, and 20 year average. All sectors experienced a sharp decline in EPS estimates, with the exception of Energy (+2.0%) and Utilities (+2.0%). During the upcoming week, nine S&P 500 companies are scheduled to report results for Q4 including the big banks, JPMorgan Chase and Bank of America, as well as Delta Airlines and United Health – a fair mix across industries. We also get CPI numbers likely to influence the pace of the Fed’s interest rate hikes.

Written by:


This document is prepared by Emirates NBD Bank (P.J.S.C) (“the Bank” or “Emirates NBD”), licensed and regulated by the Central Bank of the UAE (“Central Bank”) and the Securities and Commodities Authority of the UAE (“SCA”) and subject to regulation, supervision and control of the Central Bank and SCA, having its head office at Baniyas Road, Deira, PO Box 777, Dubai, United Arab Emirates. This document may be distributed and/or made available by the Bank and its affiliates and subsidiaries, including Emirates NBD Capital KSA CJSC (“ENBD Capital”) (through its website, its branches or through any other modes, whether electronically or otherwise).

Emirates NBD and its affiliates, subsidiaries and group entities, including its shareholders, directors, officers, employees and agents are collectively referred to Emirates NBD Group.

Any person (hereinafter referred to as “you”, “your”) who has received this document or have access to this document shall acknowledge and agree to the following terms.


Data/information provided in this document are intended solely for information or illustrative purposes and are not designed to initiate or conclude any transaction.

This publication may include data/information taken from stock exchanges or other third-party sources from around the world, which Emirates NBD reasonably believes to be reliable, fair and not misleading, but which have not been independently verified. The provision of certain data/information in this publication may be subject to the terms and conditions of other agreements to which Emirates NBD is a party. Opinions, estimates and expressions of judgment are those of the writer and are subject to change without notice. Emirates NBD or any member of Emirates NBD Group makes no representation or warranty and accepts no responsibility or liability for the sequence, accuracy, completeness or timeliness of the information or opinions contained in this publication. Nothing contained in this publication shall be construed as an assurance by Emirates NBD that you may rely upon or act on any information or data provided herein, without further independent verification of the same by you.

The contents of this document are prepared as of a particular date and time and will not reflect subsequent changes in the market or changes in any other factors, including those relevant to the determination of whether a particular investment activity is advisable. Emirates NBD does not undertake any obligation to issue any further publications or update the contents of this document. Emirates NBD may also, at its sole discretion, update or change the contents herein without notice. Emirates NBD or any member of Emirates NBD Group does not accepts no responsibility whatsoever for any loss or damage caused by any act or omission by you as a result of the information contained in this publication (including by negligence).

References to any financial instrument or investment product in this document are not intended to imply that an actual trading market exists for such instrument or product. Certain investment products mentioned in this document may not be eligible for sale in some jurisdictions, and they maynot be suitable for all types of investors. The information and opinions contained in this publication is provided for informational purposes only and have not been prepared with any regard to the objectives, financial situation and particular needs of any specific person, wherever situated. If you wish to rely on or use the information contained in this publication, you should carefully consider whether any investment views and investment products mentioned herein are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. You should also independently verify and check the accuracy, completeness, reliability and suitability of the information and should obtain independent and specific advice from appropriate professional advisers or experts.


This publication may be provided to you upon request (and not for distribution to the general public), on a confidential basis for informational purposes only, and is not intended for trading purposes or to be passed on or disclosed to any other person and/or to any jurisdiction that would render the distribution illegal.


None of the content in this publication constitutes a solicitation, offer, recommendation or opinion by Emirates NBD to buy, sell or trade in any security or to avail of any service in any jurisdiction. This document is not intended to serve as authoritative legal, tax, accounting, or investment advice regarding any security or investment, including the profitability or suitability thereof and further does not provide any fiduciary or financial advice. This document should also not be used in substitution for the exercise of the prospective investor’s judgment.

Third Party

This publication is not intended for use by, or distribution to, any person or entity in any jurisdiction or country where such use or distribution would be contrary to law or regulation. It is the responsibility of any person in possession of this publication to investigate and observe all applicable laws and regulations of the relevant jurisdiction. This publication may not be conveyed to or used by a third party without the express consent of Emirates NBD or its affiliates, subsidiaries or group entities distributing this document. You should not use the data in this publication in any way to improve the quality of any data sold or contributed by you to any third party.


Notwithstanding anything to the contrary set forth herein, Emirates NBD, its suppliers, agents, directors, officers, employees, representatives, successors, assigns, affiliates or subsidiaries shall not, directly or indirectly, be liable, in any way, to you or any other person for any: (a) inaccuracies or errors in or omissions from this publication including, but not limited to, quotes and financial data; or (b) loss or damage arising from the use of this publication, including, but not limited to any investment decision occasioned thereby. Under no circumstances, including but not limited to negligence, shall Emirates NBD, its suppliers, agents, directors, officers, employees, representatives, successors, assigns, affiliates or subsidiaries be liable to you for direct, indirect, incidental, consequential, special, punitive, or exemplary damages even if Emirates NBD has been advised specifically of the possibility of such damages, arising from the use of this publication, including but not limited to, loss of revenue, opportunity, or anticipated profits or lost business.

This publication does not provide individually tailored investment advice and is prepared without regard to the individual financial circumstances and objectives of person who receive it. The appropriateness of an investment activity or strategy will depend on the person’s individual circumstances and objectives and these activities may not be suitable for all persons. In addition, before entering into any transaction, prospective investors should: (i) ensure that they fully understand the potential risks and rewards of that transaction; (ii) determine independently whether that transaction is appropriate given an investor’s investment objectives, experience, financial and operational resources, and other relevant circumstances; (iii) understand that any rates of tax and zakat or any relief in relation thereto, as may be referred to in this publication may be subject to change over time; (iv) consult their advisers on the legal, regulatory, tax, business, investment, financial and accounting implications of the investment; (v) understand the nature of the investment and the related contract (and contractual relationship) including, without limitation, the nature and extent of their exposure to risk; and (vi) understand any regulatory requirements and restrictions applicable to the prospective investor

Forward Looking

Past performance is not necessarily a guide to future performance and should not be seen as an indication of future performance of any investment activity. The information contained in this publication does not purport to contain all matters relevant to any particular investment or financial instrument and all statements as to future matters are not guaranteed to be accurate. Certain matters in this publication about the future performance of Emirates NBD or members of its group (the Group), including without limitation, future revenues, earnings, strategies, prospects and all other statements that are not purely historical, constitute “forward-looking statements”. Such forward-looking statements are based on current expectations or beliefs, as well as assumptions about future events, made from information currently available. Forward-looking statements often use words such as “anticipate”, “target”, “expect”, “estimate”, “intend”, “plan”, “goal”, “seek”, “believe”, “will”, “may”, “should”, “would”, “could” or other words of similar meaning. Reliance should not be placed on any such statements in making an investment decision, as forward-looking statements, by their nature, are subject to known and unknown risks and uncertainties that could cause actual results, as well as the Group’s plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. Estimates of future performance are based on assumptions that may not be realized.


Data included in this publication may rely on models that do not reflect or take into account all potentially significant factors such as market risk, liquidity risk, and credit risk. Emirates NBD may use different models, make valuation adjustments, or use different methodologies when determining prices at which Emirates NBD is willing to trade financial instruments and/or when valuing its own inventory positions for its books and records. The use of this publication is at the sole risk of the investor and this publication, and anything contained herein, is provided "as is" and "as available." Emirates NBD makes no warranty of any kind, express or implied, as to this publication, including, but not limited to, merchantability, non-infringement, title, or fitness for a particular purpose or use.

Investment in financial instruments involves risks and returns may vary. The value of investment products mentioned in this document may neither be capital protected nor guaranteed and the value of the investment product and the income derived therefrom can fall as well as rise and an investormay lose the principal amount invested. Investment products are subject to several risks factors, including without limitation, market risk, high volatility, credit and default risk, illiquidity, currency risk and interest rate risk. It should be noted that the value, price or income of securities denominated in a foreign currency may be adversely affected by changes in the currency rates. It may be difficult for the investor to sell or realise the security and to obtain reliable information about its value or the extent of the risks to which it is exposed. Furthermore, the investor will not have the right to cancel a subscription for securities once such subscription has been made. Prospective investors are hereby informed that the applicable regulations in certain jurisdictions may place certain restrictions on secondary market activities with respect to securities.

Before making an investment, investors should consult their advisers on the legal, regulatory, tax, business, investment, financial and accounting implications of the investment. In receiving this publication, the investor acknowledges it is fully aware that there are risks associated with investment activities. Moreover, the responsibility to obtain and carefully read and understand the content of documents relating to any investment activity described in this publication and to seek separate, independent financial advice if required to assess whether a particular investment activity described herein is suitable, lies exclusively with the investor.

Intellectual property

This publication has been developed, compiled, prepared, revised, selected, and arranged by Emirates NBD and others (including certain other information sources) through the application of methods and standards of judgment developed and applied through the expenditure of substantial time, effort, and money and constitutes valuable intellectual property of Emirates NBD and such others. All present and future rights in and to trade secrets, patents, copyrights, trademarks, service marks, know-how, and other proprietary rights of any type under the laws of any governmental authority, domestic or foreign, shall, as between the investor and Emirates NBD, at all times be and remain the sole and exclusive property of Emirates NBD and/or other lawful parties.

Except as specifically permitted in writing, you should not copy or make any use of the content of this publication or any portion thereof or publish, circulate, reproduce, distribute or offer this publication for sale in whole or in part to any other person over any medium including but not limited to over-the-air television or radio broadcast, a computer network or hyperlink framing on the internet or construct a database of any kind. Except as specifically permitted in writing, you shall not use the intellectual property rights connected with this publication, or the names of any individual participant in, or contributor to, the content of this publication, or any variations or derivatives thereof, for any purpose. This publication is intended solely for non-commercial use and benefit, and not for resale or other transfer or disposition to, or use by or for the benefit of, any other person or entity. By accepting this publication, you agree not to use, transfer, distribute, copy, reproduce, publish, display, modify, create, or dispose of any information contained in this publication in any manner that could compete with the business interests of Emirates NBD. Furthermore, you should not use any of the trademarks, trade names, service marks, copyrights, or logos of Emirates NBD or its subsidiaries in any manner which creates the impression that such items belong to or are associated with you, except as otherwise provided with Emirates NBD’s prior written consent. You shall have no ownership rights in and to any of such items.


This publication was prepared by Emirates NBD Bank (P.J.S.C) in the United Arab Emirates. It has been issued and approved for distribution to clients by the London branch of Emirates NBD Bank (P.J.S.C) which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority in the UK. Some investments and services are not available to clients of the London Branch. Any services provided by Emirates NBD Bank (P.J.S.C) outside the UK will not be regulated by the FCA and you will not receive all the protections afforded to retail customers under the FCA regime, such as the Financial Ombudsman Service and the Financial Services Compensation Scheme. Changes in foreign exchange rates may affect any of the returns or income set out within this publication.


This publication was prepared by Emirates NBD Bank (P.J.S.C) in the United Arab Emirates. It has been issued and approved for distribution to clients by the Singapore branch of Emirates NBD Bank (P.J.S.C) which is licensed by the Monetary Authority of Singapore (MAS) and subject to applicable laws (including the Financial Advisers Act (FAA) and the Securities and Futures Act (SFA). Any services provided by Emirates NBD Bank (P.J.S.C) outside Singapore will not be regulated by the MAS or subject to the provisions of the FAA and/or SFA, and you will not receive all the protections afforded to retail customers under the FAA and/or SFA. Changes in foreign exchange rates may affect any of the returns or income set out within this publication. Please contact your Relationship Manager for further details or for clarification of the contents, where appropriate. For contact information, please visit www.emiratesnbd.com.


Emirates NBD Capital KSA CJSC (“ENBD Capital”), whose registered office is at P.O. Box 341777, Riyadh 11333, Kingdom of Saudi Arabia, is a Saudi closed joint stock company licensed by the Saudi Arabian Capital Market Authority (“CMA”) under License number 37-07086 dated 29/08/2007G (corresponding to 16/08/1428H) to deliver a full range of quality investment products and related support services to individuals and institutions in the Kingdom of Saudi Arabia. ENBD Capital is subject to Capital Market Law, and Implementing Regulations in the Kingdom of Saudi Arabia

ENBD Capital’s contact details are T +966 (11) 299 3900 and F +966 (11) 299 3955.

This document may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the Investment Funds Regulations issued by the Capital Market Authority.

The Capital Market Authority does not make any representation as to the accuracy or completeness of this document, and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this document. Prospective subscribers of the securities offered hereby should conduct their own due diligence on the accuracy of the information relating to the securities offered. If you do not understand the contents of this document, you should consult an authorised financial adviser.