• J.P.Morgan said both stocks and bonds pre-empted the macro troubles to unfold in 2023 and now look increasingly attractive
  • Morgan Stanley optimistic despite inverted yield curve hinting at a potential economic slowdown
  • Deutsche Bank said slower economic growth in 2023 won’t necessarily translate into weaker financial markets

 

It’s been a rollercoaster ride for investors in 2022 and as we come to the end, no doubt many of us are feeling a little woozy.

But what’s in store for 2023? Can we expect another wild ride or a more gentle ferris wheel type experience?

There’s certainly been plenty of doom and gloom around at the end of the year, with analysts saying the ASX has recorded its worst December on record.

But outlooks from some key global investment banks for 2023 are actually quite optimistic.

 

J.P. Morgan Asset Management – ‘opportunities in climate-related stocks and the emerging markets’

J.P Morgan said despite remaining above central bank targets, inflation should start to moderate as the economy slows, the labour market weakens, supply chain pressures continue to ease and Europe manages to diversify its energy supply.

It forecasts developed economies falling into a mild recession in 2023 but said both stocks and bonds pre-empted the macro troubles set to unfold in 2023 and look increasingly attractive.

“We are more excited about bonds than we have been in over a decade,” J.P. Morgan said in its outlook.

Furthermore, it said the broad-based sell-off in equity markets has left some stocks with strong earnings potential trading at very low valuations.

“We think there are opportunities in climate-related stocks and the emerging markets,” the bank said.

“We have higher conviction in cheaper stocks which have already priced in a lot of bad news and are offering dependable dividends.”

 

Morgan Stanley Investment Management – ‘short-term pain to pave the way for long-term gains’

Morgan Stanley’s head of applied equity advisors Andrew Slimmon is somewhat optimistic for 2023, despite noting an inverted yield curve hints at a potential economic slowdown at some point in the year ahead.

The consensus view is that early in 2023, earnings will collapse, bringing the stock market down with but sectoral leadership in the market suggests otherwise.

“My conclusions? The economy is proving too resilient, causing the ‘looming collapse’ in earnings to remain elusive for yet another quarter,” Slimmon said in their outlook.

“I expect earnings to drip down slowly, frustrating market bears.”

Senior advisor fixed income team Jim Caron said the impact of 2022 rate hikes will greatly influence asset valuations in the new year.

He said below trend-line growth and significant job losses could result from the fight against inflation but doesn’t forecast a significant economic downturn.

“It is difficult to expect a deep recession with such a robust labor market,” he said.

He said expect short-term pain to pave the way for long-term gains for the economy.

 

Deutsche Bank – ‘an acceptable year for equities, but not a great one’

In his letter to investors Germany’s Deutsche Bank Global CIO Christian Nolting said slower economic growth in 2023 will not necessarily translate into weaker financial markets.

“In fact, markets could prove more resilient in the coming year than they have been in 2022,” he said.

Nolting said central banks and investors are likely to find 2023 rather easier with inflation set to ease but staying above target levels with the worst now over.

“We hope that major global setbacks (from geopolitics, disease or other factors) can be avoided,” he said.

He said for bond investors, yield and quality will no longer be a contradiction and more stable bond markets should, in turn, help lower equity market volatility.

“2023 is likely to be an acceptable year for equities, but not a great one,” he said.

“Positive returns will be driven by some modest price/earnings expansion and dividends – but earnings per share will be stagnant.

On the currency front he said 2023 could also see a more stable US dollars with the US Fed Reserve’s likely future hiking program probably now sufficiently priced in.

“In fact, the EUR could strengthen slightly over the course of the year, given our expectation that inflation will come down more slowly in the Eurozone than in the US.

Nolting is also optimistic about China and said domestic stimulus will eventually succeed in turning its economy around.

“Chinese recovery, combined with regional reopening, means that Asia could have a good 2023,” he said.

He said the energy transition to greener sources of power and infrastructure will also continue to pick up pace in 2023.

 

Credit Suisse – ‘equity markets could still be volatile in the first half of 2023’

The Swiss global investment bank said 2023 is likely to be challenging like 2022.

“After all, financial conditions are all but certain to remain tight and the fundamental reset of macroeconomics and geopolitics is continuing,” Global chief investment officer Michael Strobaek said in his outlook address.

“Investors would thus do well to adhere to a robust investment process and diversify investments broadly, particularly as the transition out of negative rates is behind us.”

Strobaek said 2022 presented investors with a particularly difficult environment with inflation a concern going into the year, and the onset of the war in Ukraine further driving up prices.

He said central banks won’t be able to slow the pace of rate hikes before realised inflation falls persistently.

“Looking ahead, we expect financial market volatility to remain elevated as risks persist and global financial conditions remain tight,” he said.

“This is likely to create continued headwinds to growth and, by extension, risk assets.

“Nevertheless, investors can find opportunities, particularly in fixed income.”

Head of global economics and research Nannette Hechler-Fayd’herbe and Head of global investment strategy Philipp Lisibach believe the global economy has undergone a fundamental and lasting reset.

They said the reset has been due to the covid-19 pandemic, shifting demographics, climate change, weakening business investment in the wake of geopolitical ruptures, among other trends.

“The fallout is evident in our longer-term forecasts for the global economy, which we expect will grow at a much slower pace than in the 2010–2019 period,” they said in their address.

“As for financial markets, as inflation peaks and monetary policy reaches restrictive territory, fixed income should become more attractive again.

“This means that the performance of bonds and equities should again diverge, as we expect equity markets could still be volatile in the first half of 2023 as slower economic growth hits company earnings.”

 

Twitter – y’all don’t know diddly-squat

But if all these predictions are getting a bit much, take note of Nate O’Brien who describes himself on Twitter as running “a personal finance YouTube channel with 1 million subscribers”.

 

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