2023 could see a number of possible outcomes on the macro, inflation, monetary policy and geopolitical front. Due to the many moving parts, this is likely to be a year with significant forecast and prediction error.
In our 2023 outlook, we provide our thoughts on monetary policies, inflation, macro-economics, and the potential for a central bank pivot if economic growth is challenged. Then focusing on the markets, we look at earnings growth and compare equity market valuations, then highlight the thematic opportunities and risks investors need to consider.
Our key thoughts are summarised below, and we expand on them in the following report:
Monetary policies, inflation and macro-economics- Monetary policies in 2023 will continue to dictate market volatility and direction
- Inflation will remain an important focal point - inflationary pressures could recede during 2023, although frictional inflation could be more prolonged
- Macroeconomic leading indicators are pointing to a sharp slowdown globally, with the risk of stagflation rising, notably in Europe
- China will be an important determinant of global economic momentum in 2023, but remains unpredictable given the zero-Covid policy
- The risk of recession is more elevated. Whilst it is widely anticipated, the shape of recession should be a more important debate for investors in our view
- Central Banks’ resolve to fight off inflation could be superseded by growth concerns during 2023, leading to an earlier end to the interest hiking cycle
- Equity markets could be supported as investors start to anticipate an end to the hiking cycle during the course of 2023
- The 2023 earnings growth outlook is lacklustre, and the weakening macro-economic momentum could lead to this deteriorating further
- We forecast zero earnings growth at the Global and US levels, and negative growth of -5% in Europe in 2023
- Equity valuations are more supportive, with relatively more attraction in European and Asian equities compared to the US
- We focus on companies with resilient earnings growth, exposed to long term structural growth themes, that have pricing power and solid balance sheets, given the uncertain macro and inflation environment and the low growth prospects
- Thematic opportunities for long term investors still abound, notably in the area of sustainability, given a world transitioning towards net-zero
- Plenty of risks for investors to take into account, notably fiscal and monetary policies risks, the uncertain inflationary backdrop, style leadership and equity market volatility, margin pressures, higher tax rates, low structural growth and geopolitical tensions
- An ever more disruptive decade continues to affirm itself in 2023
There is the potential for a central bank pivot if economic growth is challenged.
Regulatory information and risk warnings
This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’), authorised and regulated by the Financial Conduct Authority. It does not constitute investment advice. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.
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Risk warnings – Investors should also be aware of the following risk factors which may be applicable to the strategy shown in this document.
- Investing in foreign markets introduces a risk where adverse movements in currency exchange rates could result in a decrease in the value of your investment.
- This strategy may hold a limited number of investments. If one of these investments falls in value this can have a greater impact on the strategy’s value than if it held a larger number of investments.
- Smaller companies may be riskier and their shares may be less liquid than larger companies, meaning that their share price may be more volatile.
- Emerging markets or less developed countries may face more political, economic or structural challenges than developed countries. Accordingly, investment in emerging markets is generally characterised by higher levels of risk than investment in fully developed markets.
- Income strategy charges are deducted from capital. Because of this, the level of income may be higher but the growth potential of the capital value of the investment may be reduced.
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