• Janus Henderson says the near-term global market outlook is hazy 
  • China: The big wildcard for 2023
  • For now: Focus on quality and get yourself some government bonds


The year that shalt not be named has been a remarkable one, with most investors running into things they’ve not had to deal with ever before in their, or perhaps their advisor’s careers.

We’ve had a war in Ukraine, the lingering effects of the pandemic, ferocious inflation met by an unprecedented global central banks.

With the rising rates has come the double digit losses. Losses everywhere. At the same time.

Equities, credit, property and bonds.

Janus Henderson (ASX:JHG)’s Head of Multi-Asset Team, Paul O’Connor, is warning that the short-term outlook is still murky, and we may cop more pain and valuation downgrades in the first half before the last two halves are done with us.

He does however believe that central bank tightening cycles are near an inflection mark, pointing out that the peak in rates is clearly in sight.

“The good news for markets is that we’re getting almost to the end of higher rate cycle.

“We’re going to see a few more hikes in the early months of 2023, but in terms of what markets have priced in, there’s not a lot of upside because rates have reached levels now where they’re self limiting for the economies.”

While tipping rate trajectories is relatively easy, providing an outlook on asset prices with any degree of accuracy on a short to medium term basis is always challenging – and 2023 is no exception.

“It’s hard to say if we’re about to launch ourselves into a new bull market here. It feels like it’s going to be a smog, at least in the first few months of the year.”


China is the wildcard

But, betraying the hint of a horn, O’Connor says the next 12 months could see the highest expected returns for multi-asset portfolios since the GFC (global financial crisis of 2007-2008).

“We can reasonably expect mid single digit, maybe high single digit, returns from here for high quality assets,” he said.

He did acknowledge there will be volatility along the way to achieving those returns, and said that Janus will instead focus on quality assets and pick them up on dips. But not on Wall Street.

“Geographically we like Japan and the Eurozone, but we’re underweight US equities.”

China however still remains a potential wildcard for the world economic outlook, according to O’Connor.

Economists are expecting a significant rebound in Chinese growth in 2023, on the view that the government will eventually completely abandon its “zero-COVID” policy.

“Although an orderly reopening of the Chinese economy is a plausible bull scenario for investors to embrace, even the most successful version seems unlikely to lift the economy before the middle of the year,” he said.

For financial markets, this means that the first half of the year is likely to be an environment of persistent earnings downgrades, which will probably present a continued challenge to investor sentiment.

“Still, even if growth dynamics do turn out to be problematic for risk assets, the prospect of interest rates peaking offers some cause for optimism,” he added.


History says buy government bonds

Janus regards government bonds as a core holding for its multi-asset portfolio in 2023.

One reason for buying them this year is that government bonds typically outperform equities and other risk assets when unemployment rises, which we expect to happen in the quarters ahead.

From thereon, interest rate volatility should subside, O’Connor says, as the US Fed slows the speed of hiking, helping stocks and other risk assets to regain composure after 2022’s monetary shifts and shocks.

O’Connor pointed out that history is on the side of government bonds in 2023.

“US government bonds have delivered negative returns for the past two calendar years. In 250 years of history, we have not seen this happen three years in a row.”

In conclusion, O’Connor has painted a rosy picture for risk investment this year.

“I think we have to focus on quality until we have more confidence that we’re really at the end of the rate cycle.

“With most of those rate hikes behind us and with asset valuations notably more attractive than a year ago, 2023 should be a better year for investment returns than 2022.”


The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.