- The war in Ukraine has widened global geopolitical fractures, and we see risks of deglobalization and more fragmented capital markets over the secular horizon.
- In this environment, we believe governments and corporate decision-makers will increasingly focus on searching for safety and reaching for resilience, including increasing defense spending and diversifying supply chains. These trends may augment economic inefficiencies and increase inflationary pressures. We also see an elevated risk of recession over the next two years.
- Our secular forecast for shorter business cycles and – given the changed inflation environment – diminished policy responses warrant a focus on reaching for portfolio resilience over reaching for yield. Fixed income investments, at higher yield levels, will play an important role in building resilience into diversified portfolios.
- Private credit strategies can be an attractive complement to public credit allocations, though we are seeing excesses in some parts of these markets. We expect to favor higher-quality corporate credit, and will seek to provide liquidity, not to demand liquidity, during periods of credit market stress.
- Amid higher inflationary pressures, we see U.S. Treasury Inflation-Protected Securities (TIPS), commodities, and select global inflation-linked investments as providing a reasonably priced hedge.
The global macro environment remains anything but normal, and investors will have to navigate a volatile and challenging path over the next five years. Disruption and uncertainty are likely to persist, and deglobalization will widen rifts in the global economy. A thoughtful, long-term focus should help investors along that challenging path. These are some of the key takeaways from PIMCO’s recent annual Secular Forum, with our investment professionals, guest speakers (see below), and Global Advisory Board gathered in person for three days of intensive discussions.