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An ever more disruptive decade asserts itself

Despite the risks, innovation brings opportunity, read Zehrid Osmani’s March Investment Outlook update.

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Date published
27 Mar 2023
Zehrid Osmani Head of Global Long-Term Unconstrained

Geopolitics dominate, but a resolution of the Russia-Ukraine conflict, whilst seeming unlikely at this stage, could be an important driver for a further rally in European equities.

Against an uncertain backdrop, we highlight our 10 key risks for investors to consider in 2023, updated from our outlook published in December 2022.

Our 10 key risks  

Monetary policies risk – over-tightening in interest rates creates a higher potential risk of policy mistakes for markets and economies.

Fiscal policies risk – given the difficulty of predicting frictional inflation, risk of stronger and longer lasting inflation could fuel a need for more tightening in monetary policies.

Persistence in inflation – given the difficulty of predicting frictional inflation, risk of stronger and longer lasting inflation could fuel a need for more tightening in monetary policies.

Pandemic relapse risk – localised lockdowns could create further disruptions in supply chains and bottlenecks, which could create shortages and further fuel the frictional inflation.

Corporate margin pressure – more persistent and more elevated inflation could lead to more corporate margins pressure for companies lacking pricing power.

Market volatility and Style leadership volatility – shifting expectations in monetary policies could lead to ongoing volatility in markets, and in style leadership between Growth and Value styles.

Lower long-term growth – growing indebtedness is likely to lead to ongoing low long-term growth in our view, with more scarcity in growth opportunities.

Higher taxation – given higher indebtedness, there is a high likelihood of higher tax rates, both for households and for corporates.

Geopolitical risks flare ups – Russia- Ukraine conflict has tragically materialised in 2022 and will be an ongoing risk, in terms of conflict escalation, with the risk of broadening. Other geopolitical hotspots to watch out for are China-Taiwan, North Korea, Iran-Israel, and China-RoW. Some of these geopolitical risks will be military, others will materialise into technological conflicts, such as China-US.

Climate disasters risk – climate change related disasters are likely to continue to take their toll on various regions, with risk of negative impact on societies, but also on corporates in terms of risk to productive capacities and to assets in general. and for corporates.

Innovation on the increase – as an ever more disruptive decade continues to assert itself in 2023 and beyond

With the ongoing focus on investing for a transitioning world towards net-zero, innovation rates are likely to continue to increase, and with it, disruption risk to traditional businesses is likely to continue to rise.

For long term investors, this opens up good areas of opportunities in some of the recipients of investments to achieved net-zero, but it also highlights the need to be vigilant in terms of disruption risk on established business models, and to ensure disruption risk is assessed in a detailed and structured analytical approach.

Equally important is the ability for companies to remain innovative, to both fend off competitive pressures, and to stay ahead of the disruptive trends that could challenge their market positioning. It is important to highlight here, in a market where short-term growth will be scarce (particularly Europe), long-term structural growth will be in demand. There are good opportunities across our three mega-trends of Demographic Changes, Future of Technology and Resource Scarcity. The eight medium-term thematic opportunities that we have identified previously still carry an important source of structural growth in our view. These eight medium-term thematic opportunities are:


Europe better than expected – Q4 global results season wrap

Europe’s results season was better than expected, and to a lesser degree in the US, while emerging markets were mixed, and Japan weak.

All regions posted positive sales growth, but only Europe reported positive growth in earnings (see below). On aggregate company sales beat across all regions, with the exception of emerging markets. Despite this margin pressures are continuing to come through, impacting companies across a wide range of sectors, in every region.