2023 will remain challenging for investors, but staying nimble would help take advantage of opportunities, ANZ Private Bank has predicted.
ANZ Private Bank’s 2023 Global Market Outlook is expecting markets to remain under pressure in the first half of the new year, as inflation fears lead to growth concerns, with equities likely to flounder as earnings begin to reflect a recessionary environment, demand weakens, and margins falter.
“2023 will be hard-pressed to outdo the challenges that financial markets faced in 2022. However, this year is unlikely to be a smooth ride for investors,” said Lakshman Anantakrishnan, ANZ Private banking head of investment strategy. “While the macro-outlook will remain challenging, unlike 2022 there should be ample opportunity for investors this year — where and when remains the question.”
ANZ Private also forecasts equities to test a new bottom before any sustained rally. Already, the market is beginning to shift its focus from inflation towards the outlook for global growth, due to a likely peak in inflation and hopes of a quicker moderation in price pressures.
“There has been a lot of speculation that the recent stepdown in the level of interest rate rises by the US Federal Reserve is a pivot, with the market pricing in cuts this year,” Anantakrishnan said. “In our view we believe this is unlikely to occur without material weakness in the labour market.
“At best it’s a stepdown in hawkish narrative, at worst it’s only served to extend the tightening cycle. We see any rate cuts this year as unlikely unless growth deteriorates to such an extent that the Federal Reserve is forced to blink. Even then, questions remain as to whether it will.”
On this basis and with a challenging backdrop for company earnings, ANZ Private said it would likely favour bonds in H1.
“We would look for any sell-off prior to an eventual pivot as an opportunity to build back equity exposure. Conversely, any rallies in H1 are likely to be taken as further opportunity to reduce equities, before building back exposure once they have bottomed,” Anantakrishnan said.
According to the ANZ report, the bank favours the outlook for Australian stocks versus United States stocks this year. It also highlights an overweight to Chinese stocks, a position that has recovered sharply since November.
With challenges but also potential across most sectors in 2023, for investors, remaining nimble within portfolios might be most important of all. But there will be opportunities,” Anantakrishnan said.
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