2022 has been a remarkably challenging year for risk asset investors worldwide. It’s the first year in 150 years that US stocks and long-term bonds have decreased in value by over 10%. The same challenging themes have been witnessed in most countries, including Australia. This unusually weak market backdrop is important to bear in mind as we discuss the Investment outlook for the year ahead.
The big picture
The IMF expects 2.7% global GDP growth in 2023, which is slightly lower than the 3.2% expected for 2022. The Australian economic outlook slowdown is expected to be more pronounced—the OECD estimates Australian GDP growth will be 1.9% in 2023, down from 4.0% this year. The main driver of this expected economic slowdown in 2023 is rising interest rates caused by inflation running well above central bank objectives. While 2.7% global growth in 2023 implies a below-trend global economic environment, the good news for investors is that inflation appears to have peaked which suggests interest rates are likely to be close to peaking also. The IMF expects 6.6% global inflation in 2023, down from 8.8% in 2022.
2023’s remarkable difference
Compared with this year, 2022 has been defined by resilient economic growth, high inflation and hawkish central bank behaviour. However, all three of these key macro inputs are expected to reverse in 2023. Both global and Australian economic growth is expected to moderate, inflation is expected to decrease, which is good news, and interest rate hikes are expected to end and possibly reverse -even better news. Bearing in mind these shifts are happening when risk assets are at significantly lower valuations than a year ago this suggests the outlook for risk assets is turning incrementally more positive in the year ahead.
While global investment markets will remain focused on those three main macro inputs (economic growth, inflation and interest rates), the key catalyst most risk asset investors are focused upon is the potential pausing of interest rate rises by the Fed and other central banks. Morgan Stanley expects the Fed to pause as early as January, while most Australian economists expect the RBA to pause sometime during the first half of 2023. Once these catalysts occur, risk assets such as investment funds are likely to become more attractive to investors, as confidence in future interest rates and valuations return.
With these shifts looming, Landen’s Director Jim Dionysatos explains why 2023 could be a pivotal year for fund investors:
‘We’re excited about the opportunities for our fund investors in the year ahead. With the Fed and other central banks likely approaching the all-important pause in the coming months, the high yields available on our specific investment funds offer compelling value considering the quality of the assets supporting the yields. Our savvy investment fund clients are already taking advantage of the current window of opportunity to invest in these funds at such attractive yields and are expected to continue doing so in the year ahead. We look forward to 2023 with cautious optimism.’
Visit our Wealth pages or contact us directly at 1300 526 336 if you need help navigating your financial position, goals or investment opportunities.