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Staying LIQUID
in Unpredictable Markets
Investors are bracing for more volatility in 2023 as markets adapt to an investment landscape altered by runaway inflation, interest rate hikes and geopolitics.
While this does not mean a repeat of 2022, we think investors would be well placed to withstand further market ructions by staying LIQUID in unpredictable markets i.e. being flexible and adaptable like liquid, so one can conform or adjust to any situation at hand.
Coined after the watery substance, the acronym also refers to what AB views as its key themes for 2023, notably: Low Volatility; Inflation; Quality; US Assets; Income; and Diversification.
Extreme market volatility has kept investors on the sidelines. While cash may be used for mitigation, it suffers from an inflation penalty and will not capture a market rebound when it inevitably arrives. Instead, there are solutions across and within asset classes to help mitigate volatility and capture long-term return potential.
Persistent inflation has prompted central banks to tighten monetary policy and raise interest rates at an unprecedented pace, driving down valuations premised on low interest rates. Generating a satisfactory level of income has become a challenge, causing investors to revisit their asset allocation and look for strategies that will deliver meaningful real return in such an environment.
Inflation and low unemployment have pushed the US Federal Reserve into dramatic rate hikes that may trigger a recession, while Europe’s energy crisis and China’s embattled property market risk making such a downturn global. However, earnings resilience has been key in helping companies withstand recessions, and high-quality portfolios have typically outperformed in tougher markets.
