What Investors Can Do

2022 has been a challenging year for investors, with central banks across the world raising interest rates aggressively to fight inflation, leading to an inevitable correction in financial markets.

Although inflation is expected to retreat from multi-year highs in 2023, due to high base effects, it is unlikely to return to the Federal Reserve’s (Fed) target inflation of 2% soon. For inflation to fall to that target level, the Fed may need to maintain interest rates at current high levels for some time.

Our base scenario is a shallow recession in mid-2023 in developed economies, namely US and Europe. Financial markets are expected to remain volatile in the meantime.

UOB’s Risk-First Approach is built on the foundation of investing based on one’s risk appetite before considering returns. Investors are encouraged not to chase market rallies. Instead, stay defensive and build Core investments to position for slower economic growth and continued volatility in stock markets entering a recession. Core investments include defensive assets such as Investment Grade bonds and lower-volatility solutions such as multi-asset strategies.

Core Allocation

Multi-asset Strategies

Multi-asset strategies provide flexible and diversified asset allocation. They allow investors to capture opportunities across market cycles, as well as asset classes such as equities, bonds, and alternatives. Many multi-asset strategies also provide consistent cash flow in the form of monthly dividends.

As inflation and interest rates moderate alongside growing recession risk, the stock-bond correlation may return to its negative trend, meaning stock prices fall when bond prices rise and vice versa. This could reverse some of the losses suffered by multi-asset strategies in 2022.

Ultimately, multi-asset strategies, being lower risk in nature, form a solid foundation in Core portfolios to help investors build portfolio resilience and meet financial goals in the long-term.

Investment Grade Bonds

With yields at cyclical highs, investors standing by for opportunities to enter the stock market can wait out in Investment Grade bonds, and lock in higher yields.

Investment Grade bonds can now provide investors with attractive yields of above 5% across all durations, compared to a year ago when yields were between 2.4% - 3.5% (Figure 4) Icon tooltip.

As such, investors should look to lock in attractive yields and focus on cash flow returns over the coming years.

Investment Grade bonds are also an important portfolio stabiliser, especially amid recessionary concerns. With strong fundamentals, we expect them to be resilient under a slow growth scenario or even benefit from potential capital appreciation in the event of a recession.

Tactical Allocation - Top Ideas

Top Ideas are investment opportunities the UOB Personal Financial Services Investment Committee identifies through a rigorous process of research and deliberation using our VTAR framework. This framework provides a holistic view of financial markets and identifies investment opportunities across asset classes, sectors, geographical regions and time periods.

US Financials

We retain US Financials as one of our Top Ideas. This boils down to higher interest rates boosting net interest margins, while bank earnings remain healthy overall. Long-term fundamentals remain strong as banking remains a core business with a high barrier to entry. It would take time for digital banks to build up their presence and compete with brick-and-mortar incumbents.

While clear challenges remain in the near-term, such as rising loan-loss provisions in preparation for a recession and lower investment banking fees amid an uncertain economic backdrop, these are short-term headwinds. If the potential recession proves to be short and shallow, loan-loss provisions will also be marked lower sometime in 2023, which should then provide a tailwind for bank stocks.

Furthermore, if interest rates remain high but the yield curve inversion abates, the combination of lower front-end funding costs and higher back-end lending revenues will boost bank earnings.

US Financial

US Financials remain relatively attractive compared to the broader S&P 500 Index. The sector will continue to benefit from a high interest rate environment even if loan growth slows. Risks include recessionary concerns and rising competition from alternative payment platforms putting pressure on traditional banking revenues.


Asian stocks could pick up momentum as economic reopening continues to play out and as economies such as China adopt supportive policies to boost economic growth. Recent easing of pandemic policies and fresh stimulus for the Property sector were also welcomed by investors.

While Asian markets are not immune to recession risk in Developed Markets, they have become less reliant on export demand from Developed Markets. The growing Asian middle class is driving global consumer trends and spending, creating prospects for domestic and foreign companies to capitalise on. Furthermore, structural drivers such as urbanisation and digitalisation continue to be key drivers for sustainable domestic consumption. This ensures that Asia’s growth will become less dependent on Developed Market economic growth.

Within Asia and aside from market drivers, Chinese stocks offer compelling opportunities given their attractive valuations. Much of the negative news has likely been priced in, and earnings growth expectations have been trending downward. At such a low level, we believe that expectations can be easily surpassed, which would deliver an upside surprise to the market.


Valuations for Asia ex-Japan remain relatively attractive compared to historical averages. Economic reopening and normalisation of activity continue to have a positive effect on the region’s recovery. A slowdown in Developed Markets, on the other hand, may impact Asian businesses that rely on export revenue.


Valuations for Chinese equities are attractive compared to historical averages. Supportive policies and the COVID reopening may also boost investor confidence in the China market. A rough economic transition could compound current difficulties and risks, slowing China's economic growth.

Global Healthcare

We continue to see opportunities within the Global Healthcare sector as we enter the third year of the COVID-19 pandemic. We believe that this industry has both a defensive and long-term growth profile, with inelastic demand and compelling long-term structural drivers.

Pharmaceutical revenue is less affected by the economic cycle than that of other sectors, making it one of the most defensive industries. In a slow growth environment, we expect pharmaceutical stocks to hold up better compared to other sectors.

On top of its defensive characteristic, the Global Healthcare sector also benefits from structural tailwinds such as an ageing global population, which gives rise to the need for healthcare services. The pandemic has also accelerated digital transformation within the healthcare industry. We see long-term structural growth in themes such as health tech, which enables remote healthcare services at reduced costs.

Global Health Care

Global Healthcare valuations are at a discount compared to broader global equities, while the sector’s earnings growth prospects remain strong. The sector also demonstrates defensive characteristics, such as lower volatility. US drug pricing and policy dynamics remain risks, although these may diminish over time with more clarity.

Additional Resources

Contact a UOB Advisor

Contact a UOB Advisor

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Managing Editor
  • Winston Lim, CFA
    Singapore and Regional Head,
    Deposits and Wealth Management
    Personal Financial Services
Editorial Team
  • Abel Lim
    Singapore Head,
    Wealth Management
    Advisory and Strategy
  • Michele Fong
    Head, Wealth Advisory and Communications
  • Tan Jian Hui
    Investment Strategist,
    Investment Strategy and Communications
  • Low Xian Li
    Investment Strategist,
    Investment Strategy and Communications
  • Zack Tang
    Investment Strategist,
    Investment Strategy and Communications
UOB Personal Financial Services Investment Committee
  • Singapore
    • Abel Lim
    • Ernest Low
    • Michele Fong
    • Tan Jian Hui
    • Low Xian Li
    • Zack Tang
    • Jonathan Conley
    • Alexandre Thoniel, CAIA
    • Chen Xuan Wei, CFA
    • Christine Ku
    • Daphne Chan
    • Jaime Liew
    • Shawn Tan
    • Marcus Lee, CFTe, CMT
    • Ivan Hu
  • Malaysia
    • Joel Tan
  • Thailand
    • Suwiwan Hoysakul
  • China
    • Huang Li Li
  • Indonesia
    • Diendy

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