As 2023 begins to take shape, investors are keen for insights into what 2023 may offer in terms of economic growth.
Experts believe inflation has now reached its peak and will influence rates to do the same and peak by mid-2023.This means further work for government policy agencies to mitigate the impact of higher rates on economic growth.
Throughout 2022 inflation had significant impact on global equities and bonds. Impacted confidence and economic shocks moved central banks increase interest rates and put an end to a long period of low rates.
2022 did see however better than expected performance from dividend paying value stocks became more attractive investment options thanks to higher discount rates. The US dollar achieved parity with the Euro for the first time in 20 years while commodities also did well as a result of prices rises linked to the war in Ukraine.
Equities in 2023 are reasonably valued on a lagging and leading basis and are likely to benefit from peak inflation and peak interest rates, provided a recession is avoided. However, this is not expected to buoy all aspects of the market thanks to excess liquidity. The ‘growth versus value’ concept is holding interest although price action is likely to be more idiosyncratic.
From the perspective of fixed income, interest rates play a key role in the 2023 outlook. Global monetary tightening saw sovereign fixed income mechanisms be negatively impacted as yields increased and pushed prices lower.
While global inflation is expected to slow down, experts believe it will remain at over 2%, which will have significant impacts for fixed income investors where ‘quantitative tightening’ continues.
As we move through 2023, experts suggest an active approach is still needed where the future is less likely to be supportive of bond prices and attention is required to sovereign yield spreads and their relevant risks.
If you have a question about the market outlook for 2023 or the performance of your investments, please don’t hesitate to get in touch with a member of our team at Hennelly Finance.
*Reference Zurich Ireland (2023) “Pivotal year ahead: Investment Outlook 2023”. Online at https://bit.ly/3SFf0mW.