ANZ Private Bank has released its 2023 Global Market Outlook, predicting a challenging year for investors. The report emphasizes the importance of remaining adaptable to seize opportunities as they arise.
The outlook anticipates that markets will face pressure in the first half of 2023 due to shifting concerns from inflation to growth. Equities are expected to struggle as earnings reflect a recessionary environment, with weakened demand and faltering margins.
Lakshman Anantakrishnan, Head of Investment Strategy at ANZ Private Banking, stated: “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.” He added that while the macro-outlook remains challenging, there should be ample opportunity for investors this year.
The report suggests equities may test new lows before any sustained rally occurs. It notes that early in 2023, expectations of a peak in inflation and hopes for quicker moderation in price pressures have shifted market focus towards global growth prospects.
“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. In our view we believe this is unlikely to occur without material weakness in the labour market,” said Mr. Anantakrishnan.
He further explained: “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.”
Given these conditions and challenges for company earnings, ANZ Private expects bonds to be favored in H1. Mr. Anantakrishnan mentioned: “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.”
The report indicates ANZ Private's preference for Australian stocks over United States stocks this year and highlights an overweight position on Chinese stocks 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,” concluded Mr. Anantakrishnan.