As we enter the second quarter, we expect China’s economy to continue to be supported by its Covid reopening, but we see more downside risks in developed economies.

The recent events in the banking sector are likely to lead to a further tightening of bank lending standards, which could further slow growth in developed economies, possibly leading to a moderate recession over the course of the year. However, with little evidence of extreme excess in the real economy and with better capitalised banks, we see a repeat of 2008 as unlikely.

If the commercial banks tighten lending standards, the Federal Reserve and other central banks will need to do less to bring about the desired slowdown in activity and reduction in inflation.

At this stage, there are considerable uncertainties – in both directions – over the extent to which the recent turmoil will affect sentiment and activity. This uncertain backdrop argues against extreme positioning between or within asset classes. We believe that investors should maintain balance in their portfolios with a focus on quality within both equity and bond allocations.