Skip to main content
Select your role:
  • Individual Investor
  • Intermediary
  • Institutional investor

2022 Q4 Asset Class Outlook

October 2022

Quarterly Asset Allocation Views1

Tactically cautious with increased use of risk management tools and equity futures to manage volatility. Equities are generally underweight tactically, with some changes across allocations expected over the quarter. Sentiment indicators are very bearish, particularly following the elevated August US CPI print and a market understanding that the US Federal Reserve (Fed) is willing to tighten considerably into a material growth slowdown. Market optimism was recently tamed, whilst trapped money from investors taking part in the July rally could well be sold off again, bringing markets to re-test the year-to-date lows. Inflation is likely to remain elevated for some time, with the market expecting a Fed terminal rate above 4%. A hawkish Fed, rising rates and a stagflationary macro backdrop will remain headwinds for risk assets.


We are relatively more positive towards USD assets, Southeast Asian equities, and select sectors within US equities (including energy and utilities).

  • The investment risks that have dominated so far this year have not dissipated. Tight labour markets, supply-chain disruptions and commodity-supply shortages all continue. This is against a backdrop of high and rising inflation that central banks have not yet tamed. Interest rates will have to rise further across developed and emerging markets to ensure inflation expectations remain in check.
  • Aggressive rhetoric has continued from the Fed, rather than any finessing of the hike profile. Higher inflation has remained persistent, and we anticipate that central banks will knowingly and willingly hike into substantial economic weakness, exacerbating the downturn and heightening the chance of a recession.
  • As a result of the Russia-Ukraine situation and commodity-supply stoppages, exacerbating inflation resulting from high commodity prices and uncertainty are likely to derail any short-lived momentum. Global growth forecasts are being reduced, with Europe the most vulnerable. The notion of transitory inflation has gone: sanctions represent a supply-driven inflation shock, introducing risks of stagflation, whilst yield curve inversion signals weaker macro conditions.
  • Pervasive geopolitical uncertainty, downside risks to growth, and upside pressures on inflation underpin caution regarding earnings and valuation expectations.
  • Levels of uncertainty would suggest continued heightened volatility lies ahead. In the current environment it is as vital as ever to retain a clear, consistent strategic perspective while navigating extreme turbulence. This is not a temporary event, and we do not expect a swift resolution. Until complex geopolitical risks recede, we anticipate continuing heightened market volatility.
  • Given weaker economic growth momentum, coupled with ongoing geopolitical uncertainty, we expect equity markets to experience heightened volatility. However, markets with significant exposure to energy and materials (as inflation hedges) and low volatile, defensive attributes of consumer staples/utilities and broad dividend names may find some insulation.
  • We are taking a highly tactical stance on equities, with the fundamental outlook increasingly concerning although cautious investor sentiment indicators set up the potential for tradeable bounce opportunities.
  • Within equities, we are taking a ‘barbell approach’ with select countries and sectors. We are relatively more positive towards USD assets, Southeast Asian equities within Asia ex-Japan, and select sectors within US equities (including energy and utilities).

Hedging duration risk through bond futures. Given the weak return profile of government bonds, coupled with the fact that the balance of risks is slightly to the upside (for yields), we maintain a modest underweight duration. In the longer run, we believe that yields will continue to move higher as the Fed continues to tighten monetary policy, further warranting an underweight in the asset class. Credits from a strategic perspective remain a preference with spread opportunities in Asia and still attractive yields within US fixed income given the relatively resilient US economy. However, on a tactical basis, we remain cautious given the recent spread widening. Over the medium term, EM debts could begin to look attractive given valuations, but we have relatively less conviction here at the moment.

  • The market is pricing in an aggressively hawkish Fed, whilst sentiment is arguably at extreme bearishness. We believe the Fed, and other major central banks will begin cutting rates in mid-2023, which is consistent with current market pricing.
  • Global central bank tapering and rate hikes in both developed and emerging markets will likely contribute to the worsening of global liquidity conditions and headwinds to growth. Markets saw the de-pricing of a Fed pivot and anticipate further rate hikes this year. Yields have continued to march higher.
  • Retain our underweight duration stance due to a broadening tightening cycle by numerous central banks. However, while it is concerning that inflation has been so persistent, eventually growth slowdown dynamics brought about by tightening financial conditions will present opportunities, thereby requiring a nimble approach.
  • We are relatively underweight US fixed income overall (as a function of underweight duration), while the US remains relatively more attractive compared to other developed markets, given expected higher coupons and a stronger USD over the short term.
  • Prefer “carry” opportunities and higher-yielding markets such as Australia.
  • Opportunistically managing duration and fixed income exposure via both short put Treasury futures and vanilla Treasury futures.
  • In credits, we are increasingly cautious with widening spreads and heightened recessionary risks. We believe the US high-yield market has the potential to deliver relatively better performance versus risk assets like equities, as it is better compensated under rising inflation. Also, US high yield has a lower default potential, as these bonds have greater exposure to oil and gas sectors and a relatively stronger US economy.
  • We view commodities from two perspectives, both as hedges and diversification tools. We expect commodity prices, such as oil/refiners and agriculture products, to remain elevated on the back of continued supply disruptions and geopolitical tensions. Commodities with inflation-hedge properties, like precious metals, oil/refiners and farm products will likely perform better. Base metals could remain challenged given the expectations of slowing Chinese demand. We currently prefer energy equities rather than commodities on a tactical basis.

We believe that increasing market volatility and greater geopolitical uncertainty make cash a relatively attractive asset class in the short term. It also allows for nimbleness to take advantage of market opportunities.

Quarterly Fund Managers’ Views

Below market views are provided by the respective fund house.


Decades-high inflation and aggressive Fed rate hikes dragged equities and corporate profit estimates lower amid growing fears of a recession. The conflict between Russia and Ukraine as well as persistent COVID also dented investor sentiment. In this environment, global REITs were lower alongside global equity markets in the first three quarters of 20221.

The current environment remains uncertain as to whether central banks will succeed in taming inflation, while at the same time preserving economic growth to avoid a potential recession. We do expect that the aggressive measures taken by many central banks will lead to a moderation as the year progresses and as we enter 2023. Much attention will be placed on near-term economic data to see how well central bank policymakers are doing in order to temper inflation while avoiding an economic recession. With that in the near-term, we expect conditions to remain volatile as economic data is released but we remain positive on the long-term prospects for global economic growth.

We believe Global REITs remain an attractive asset class in the current market environment with a combination of favourable valuations and distribution yields. Furthermore, we believe dividend and earnings growth will continue to trend positively resulting in an attractive alternative for income-seeking investors. We have seen dividend growth persist in 2022 and expect further growth going forward as the economy recovers.

Despite this positive view, we consistently monitor potential risks across global REITs, including geopolitical risks that could weigh on global markets. Select sub-sectors and regions within global REITs may continue to see some earnings pressure from the ongoing impact of the COVID pandemic. We believe any near-term pressure on real estate fundamentals will ease over time as the global economy recovers, especially in the Office, Retail, and Residential sub-sectors.

From a regional perspective, we favour the U.S., Canada, Australia, and Singapore markets, owing to a combination of attractive valuations and distribution yields. Within these countries, and from a global perspective, we see investment opportunities within Industrial, Retail and technology-related REITs.

Overall, we believe the long-term outlook for global REITs remains positive given the continued strength in real estate fundamentals. Distribution yields within the REIT market remain favourable compared to other yield-oriented investments and the prospects for dividend growth within the sector should continue to present an attractive alternative for investors seeking income. We also continue to find compelling opportunities within the REIT market that trade at significant discounts to what we view as their intrinsic net asset values.

1 Bloomberg, as of 30 September 2022. Global REITs measured by S&P Global REIT Index; Global Equities measured by MSCI ACWI Index.

Fixed Income

A combination of high inflation and full employment has led the Fed to adopt a drastically different approach to monetary policy in the past few months. We believe that market pricing of expected rate hikes is overdone, particularly against a backdrop characterized by, as we expect, slowing growth and some moderation in inflation.   

While uncertainty has increased, we remain constructive on corporate fundamentals overall. Given the global economic uncertainty, the portfolio is invested in high quality companies that offer attractive yields. The investment team continues their defensive position stance since 2019, with overweight allocations in areas such as utilities and underweight allocations in retail fixed-coupon securities. Corporate credit fundamentals are strong. Valuations are attractive and balance sheets are strong. Financial sector credit fundamentals are strong, much different than the global financial crisis in 2008-2009.  Energy and utilities have strong fundamentals, two sectors we are overweight.    Even in the event of a recession, the strategy is invested in high-quality companies, companies that able to withstand an economic downturn. We believe it is well positioned to weather higher rates and inflation with its fully diversified portfolio.

As of end of August, the strategy has outperformed broad preferred market on 3 month, 6 month, year to date, one year and three year basis apart from achieving a higher income yield1.

With increasing market volatility and lifting inflation, investors are seeking stable and higher income assets. Preferred securities can offer a combination of attractive yield characteristics, inflation-hedging potential, and interest rate risk mitigation.

As an investment-grade asset class, yields of preferred securities are comparable to those of high yield bonds. When economic growth slows, markets typically experience a flight to quality. With an average credit rating of BBB-, the investment-graded preferred securities are relatively high-quality assets. Over 90% of preferred issuers are rated as investment grade2.

We believe that very few, if any, preferreds will default in 2022. Historical default rates among preferred securities have been low primarily because issuers are generally well-established, high-quality companies with solid balance sheets. The preferred market has experienced 15 upgrades with only 6 downgrades, and 8 rising stars year-to-date3.

1 Source: Bloomberg, Manulife Investment Management, as of 31 August 2022. 

2 Source: Bloomberg, as of 31 August, 2022.  Preferred market is measured by ICE BofAML US All Cap Securities index (I0CS).

3  Source: Bloomberg, Manulife Investment Management, as of 30 June 2022.


Set against a backdrop of deteriorating global economic growth, elevated inflation, and negative investor sentiment, global markets have spent the past quarter pricing in an increasingly hawkish profile for central bank rate hikes, leading to a sharp spike in volatility across asset classes.

Inflationary pressures should unwind gradually over the coming months, but they’re likely to remain at elevated levels through the rest of 2022 and into next year. We expect headline CPI readings to begin to diverge from Core CPI readings: Food and energy prices are likely to remain high, but more interest-rate-sensitive items should begin to display signs of disinflation. We expect inflation to have materially decelerated by the middle of 2023 on the back of base effects kicking in, an expected buildup in excess inventories in non-auto retail goods, and the alleviation of supply chain disruptions.

Global central bank tightening in both DM and EM will contribute to deteriorating global liquidity conditions and act as a headwind to growth. While we initially expected central banks to shift their focus from tamping down inflation to addressing growth-related concerns later this year as economic data worsened, obstinately high inflation readings gave most central banks little choice but to continue raising rates despite slowing growth, thereby amplifying recessionary dynamics.

That said, we believe the Fed, the Bank of Canada (BoC), and other major central banks will begin cutting rates in Q3 2023, a view that’s consistent with current market pricing. The brewing energy crisis in Europe has cast a dark shadow over the region’s outlook—talks of preemptive gas rationing in the winter months are a reflection of how severe things can get on the Continent.

We remain in a challenging environment for global markets - growth and earnings could disappoint due to growing global logistical challenges, but also due to the growing pressure on policymakers to reduce their stimulus efforts in the face of rising inflation. The market is pricing in an aggressive hawkish Fed, whilst sentiment is arguably at extreme bearishness..

Tactical positioning will be more prevalent again into 2022, to be able to nimbly add and de-risk portfolios as well as add to yield opportunities as they arise. Overall, we are tilted towards higher rates from here and stable spreads, but see yields keeping contained given the potential for macro data disappointments.

In a higher-rate environment, we capture income via exposures to high-yielding bonds. Although bond prices typically fall under higher rates, this can be mitigated by managing the interest rate sensitivity (or duration) exposure. In theory, high-yield bonds are less sensitive to interest-rate rises, hence can be more cushioned against a significant rise in rates. A bottom-up security selection approach to income harvesting allows us to invest into the corporates that can maintain their businesses in this type of environment, whilst providing a sustainable fixed income coupon or dividend yield. In the last six to eight months as of June 2022, for example, the team have been less focused on EM debt but rather having a preference for increased allocations towards US credit because of low US default rate expectations, a relatively stronger US economic backdrop and hence a stronger US dollar, covid-19 concerns in EM, as well the ongoing impact on debt markets around issues in China and Russia.

Our global multi-asset diversified income approach is not reliant on the continued growth of equity or fixed-income markets. We will remain focused on generating higher, sustainable natural yield from a range of assets with lower correlations and expected relatively lower volatilities than strategies that are more reliant on asset appreciation.

We believe the search for income will continue, and remain an attractive segment for investors. Yields are now higher for income investors to capture a higher income versus prior months, spreads are wider, offering potentially attractive spread opportunities, whilst equities are markedly lower, pricing in an already challenged set of headwinds that could provide recovery opportunities over the next 12-18 months.


1 Source: Multi-Asset Solutions Team (MAST) in Asia, as of August 2022. Projections or other forward-looking statements regarding future events, targets, management discipline or other expectations are only current as of the date indicated. The above information may contain projections or other forward-looking statements regarding future events, targets, management discipline or other expectations. There is no assurance that such events will occur, and the future course may be significantly different from that shown here.  

Disclaimer – Quarterly Asset Allocation Views

Manulife Investment Management is the global wealth and asset management segment of Manulife Financial Corporation. The information and/or analysis contained in this material have been compiled or arrived at from sources believed to be reliable but Manulife Investment Management does not make any representation as to their accuracy, correctness, usefulness or completeness and does not accept liability for any loss arising from the use hereof or the information and/or analysis contained herein. Neither Manulife Investment Management or its affiliates, nor any of their directors, officers or employees shall assume any liability or responsibility for any direct or indirect loss or damage or any other consequence of any person acting or not acting in reliance on the information contained herein.

This material was prepared solely for educational and informational purposes and does not constitute a recommendation, professional advice, an offer, solicitation or an invitation by or on behalf of Manulife Investment Management to any person to buy or sell any security. Nothing in this material constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. The economic trend analysis expressed in this material does not indicate any future investment performance result.   This material was produced by and the opinions expressed are those of Manulife Investment Management as of the date of this publication, and are subject to change based on market and other conditions. Past performance is not an indication of future results. Investment involves risk, including the loss of principal. In considering any investment, if you are in doubt on the action to be taken, you should consult professional advisers.

Proprietary Information – Please note that this material must not be wholly or partially reproduced, distributed, circulated, disseminated, published or disclosed, in any form and for any purpose, to any third party without prior approval from Manulife Investment Management.

This material is issued by Manulife Investment Management (Hong Kong) Limited. This material has not been reviewed by the Securities and Futures Commission (SFC).

Disclaimer and Important Notice - Quarterly Fund managers’ Views

The relevant information is prepared by relevant fund house(s) for information purposes only. The contents are based on information generally available to the public from sources reasonably believed to be reliable and are provided on an "as is" basis but have not been independently verified. Any projections and opinions expressed therein are expressed solely as general market commentary and do not constitute solicitation, recommendation, investment advice, or guaranteed return. Such projections and opinions are subject to change without notice and should not be construed as a recommendation of any investment product or market sector.

The opinions as expressed in the relevant articles do not represent those of Manulife Investment Management.

Manulife Investment Management does not make any representation as to their accuracy, correctness, usefulness or completeness and does not accept liability for any loss arising from the use hereof or the information and/or analysis contained herein.