2023 Investment Strategy: Navigating Markets And Rates
Markets, rates, investments: in what context are investors operating today? What are the opportunities in this year that has just begun? Try to make estimates Alberto Tocchio, Head of European Equity and Thematics of Kairos Partners SGR and Jon Maier, CIO of Global X.
The View of Kairos
In this beginning of the year, Tocchio argues, in “Europe the markets mark +6% (as of 09.01.2023), with the Eurostoxx outperforming the S&P500 by more than 10% since last September”.
Furthermore, continues the analyst, “the interest rate market has begun to price in both the possibility of a 25 basis point hike by the Fed and even a cut at the end of the summer, but – the expert asks again – are we are you sure that the attitude of the Central Banks has changed in a few days?”
“Among the positive factors – explains the head of the equity division in Europe of Kairos – we mention the drop in inflation and the reopening of the Chinese market; among the negatives are the duration and severity of an increasingly probable recession, a new phase of expansion in the commodity market and rates that remain high”.
“Although a new year has begun, the underlying logic remains the same as a few weeks ago: we are emerging from a period of stable growth and low interest rates to move into one characterized by volatile, polarized and de-globalised markets. Regime changes take time and we certainly cannot take these first few days as a valid signal for the whole year to come”, concludes Alberto Tocchio.
The Global X View
Strong>Jon Maier, CIO of Global X, also speaks of central banks, presenting the possible consequences of a possible turnaround of central banks, referring in particular to Jerome Powell’s Fed.
“Last year, central bank policies increased the correlation between US stocks, international equities and bonds, causing a major repricing of all asset classes. But, with the Fed’s key rate approaching 5.0%, the pace of increases is set to decrease: in 2023, conditions could therefore be favorable for a reduction in correlations”.
In short, as the end of rate hikes approaches, correlations between asset classes should decrease, creating new opportunities for investors.
Maier highlights “the cyclical nature of the correlations and how S&P 500 sectors are now in different phases, with sectors such as IT and Communication Services currently seeing most stocks below their 200-period average.”
This offers exciting opportunities, particularly in areas such as cybersecurity, clean energy and infrastructure.
To cushion the impact of market downturns, Maier emphasizes that it remains crucial to build diversified portfolios that include loosely correlated assets.
“For US equities – underlines the CIO of Global X – in the first half of this year one factor to consider is represented by the difficult outlook for earnings. For the S&P 500, the fourth-quarter year-over-year earnings growth rate was revised to -2.8%, well below the 3.7% estimated at the start of the quarter. About 55% of S&P 500 companies, and 71% of Nasdaq companies, are trading below their 200-day moving averages today.
“Weakening earnings growth could come alongside increased risk of a recession, evidenced by the sharp decline in the Conference Board Leading Economic Index.”
What to Say Instead About The Former US Countries?
Maier writes that, “outside the United States, fears of an energy crisis in Europe have dissipated thanks to the good stability of storages, while China, abandoning its zero-COVID policy, has given greater priority to economic growth”.
In this context, “since thematic investments are global in nature, they can benefit from the improvement of the international situation; however, with global growth slowing and financial conditions tightening, we need to be selective.”
This article is originally published on finanzaonline.com/