With a challenging year for the global economy now fast drawing to a close, investors are rightly focused on the outlook for markets as we move into 2023.

Our starting position for the final quarter of 2022 was that it would mark the commencement of a risk rally. And so far that has rung true, with the two-month period to 30 November seeing the ASX 200 up over 12.5%, bested only by a 14.3% return from REITs. Gold also had a stellar November, up 8.3%, and while this may seem paradoxical in a risk on period, the cause can largely be traced to gold’s familiar stalking horse: a fall in real bond yields.

In our final update for this year, Tim Toohey, Yarra Capital Management’s Head of Macro and Strategy, lays out the case for why he believes bonds are the natural place for 1Q23, why the US market is not as expensive as many perceive and why the Australian equity market is offering even better value.