Dorval Asset Management’s macroeconomic & market scenario and exposure rates - 15 novembre 2022

Information that has emerged since our latest publication on November 4 is consistent with the scenario that we had set out. The lion’s share of the Fed’s rate hikes expected out to the Spring is now priced in, while China remains a stabilizing force for the global economy: the combination of these two factors is propping up the world financial markets in the short term.

Publication of US inflation figures for October triggered a sharp upturn in risk appetite. Core inflation – excluding food and energy – edged up much less than the consensus expected, with a 0.3% gain vs. 0.5% expected and compared with a 0.6% jump the previous month. We note the dip in used car prices, easing prices in the healthcare sector – healthcare insurance, hospital services, nursing care – and a slight slowdown in rents. However, it takes more than just one month to establish a trend, and the various core inflation figures continue to rise at an excessive pace (cf. chart 1). It is too early for the Fed to conclude that it has fulfilled its mission, so interest rate hikes are set to continue, although probably at a slower pace. Investors now expect a 50bps hike at the next FOMC on December 14, rather than 75bps. Disinflation is the main scenario for 2023, and more sluggish inflation at the outset along with a gradual slowdown in demand are increasing the likelihood of a soft landing next year.


Various core CPI figures

Average of 5 statistics


Meanwhile looking to fiscal policy, the midterms came and went with no big surprises. The so-called red wave did not materialize, but the House of Representatives still looks likely to end up in Republican hands (with the Senate set to stay Democrat), which makes any major change in fiscal policy unlikely. President Biden’s relative victory bolsters the country’s energy transition theme, which would probably have been hindered by a sweeping Republican victory (cf. chart 2). This theme has featured in our international portfolios since 2020 and comprises around forty stocks from large developed countries, including around ten in North America.



Relative performances from our theme-based baskets vs. MSCI World Equal Weighted index

Green Deal basket / International Responsible Selection basket



Lastly, the Chinese authorities announced two initiatives one after the other i.e. measures to offset the damaging economic effects of the country’s zero-Covid strategy, and a rescue package for the real estate sector which is currently struggling severely. Moves to shore up the Chinese economy at a time when the rest of the world is slowing are reminiscent of the policy to deliberately dampen the economy in 2021 while the rest of the world was overheating. China operates in a countercyclical way vs. other areas of the world, which makes for quite a stabilizing effect. According to IMF projections, the country’s economy should grow by 4.4% in 2023 vs. a 3.2% gain in 2022 (cf. chart 3).


Stop & Go approach to zero-Covid strategy

GDP, YoY %
Median of economic activity indices

Bloomberg monthly GDP
Li Keqiang index

Consensus projection (Bloomberg)


In line with our analysis of our four pillars, we continued to raise all our flexible funds’ equity market exposure. In our international funds, we tactically focused on market sectors that are lagging furthest behind i.e. the MSCI Emerging Markets index, the Nasdaq and small- and mid-caps in Europe.


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