Supply/Demand Mismatches and 2021 Economic Growth

Relative Value & Tactical Asset Allocation

Jun Jiang
JUN 30, 2022

We recommend

Still Chained: N95 Masks and Supply Chains Lessons During COVID-19

How to Stop Worrying and Learn to Love Inflation

Key Takeaways

  • High commodity prices, rising inflation and the tightening of
    global monetary policies are likely to drive global economic
    growth slower and continue to put pressure on assets.
  • A hawkish Fed and rising U.S. recession risk could result in a
    very flat or even inverted yield curve by the year-end.
  • Credit spreads could widen more, in our view, as corporate
    earnings growth and profit margins may continue softening.
  • Consumer balance sheets remain healthy, but some weaker
    borrowers are likely feeling stretched.
  • Housing and commercial real estate related sectors should
    benefit from higher inflation and low unemployment.
    Mortgage-related products are overweighted.
  • Private asset spreads have been compressed due to lagged
    pricing and valuations are rich relative to public assets.
  • Given our late-cycle views, we prefer up-in-quality credits
    and long duration assets over risky assets, such as High Yield
    Bank Loans, High Yield, and Equity.