(November 24): Challenges abound for markets in 2023. Russia’s stalemate in Ukraine’s war? Check. Stagnant growth and recession? Check. High inflation? Certainly.
But for Amundi, Europe’s largest asset manager, there are also plenty of investment opportunities as valuations become more attractive.
The Federal Reserve could raise interest rates to 5.25% before pausing in March, according to the Paris-based company.
Speculation about a political pivot that will follow will help support stocks and bonds, reviving the age-old 60-40 portfolio where 60% of assets are allocated to equities and 40% to fixed income, he said in a statement. report on its outlook for 2023. .
A decline in the dollar, forecast to 4.7% on a trade-weighted basis, also bodes well for equities and some emerging market assets, while above-target inflation will boost demand for real assets such as infrastructure and real estate.
“It’s the glass half full,” Amundi said. “2023 will be a two-speed year, with many risks to monitor. Bonds are back, stock valuations are getting more attractive and a Fed pivot in the first part of the year could trigger interesting entry points.
The global economic context will be difficult. The risk that central banks put the brakes on too hard and that the cost of living crisis continues will weigh on growth. Amundi expects developed market economies to grow just 0.3% in 2023, down from 2.6% this year.
In the United States, growth will fall sharply to 0.8% from 1.9%, according to Amundi. The energy crisis will be the main economic driver in Europe, where Amundi predicts a recession. Global inflation may have peaked, but is expected to remain elevated above targets through next year.
Geopolitical pressure will be another headwind. While Amundi’s baseline scenario is for a ceasefire in Ukraine in the second half of next year, it attaches a 25% probability to the risk that the conflict will escalate into a military confrontation between Russia and Israel. West.
An escalation of the confrontation between the United States and China is also a major risk, although Europe will likely resist being dragged into the quagmire as long as tensions over Taiwan do not lead to military hostilities, he said. -he declares.
“The economic impact of the Russian-Ukrainian war is reducing the appetite for weakening ties with China,” the report said. “The need to develop renewable energy will be acute in 2023 and China is a major producer of solar panels.”
Yet these risks do not necessarily mean another bad year for assets. Amundi expects high single-digit returns for high-quality US corporate bonds and the S&P 500 index. The good news is that key rates are near their highs, with the Fed likely to pause at 5, 25%, the European Central Bank at 2.5% and the Bank of England at 4.5%.
Some calls from Amundi for 2023:
- Favors investment grade US credit and emerging market hard currency debt over junk bonds.
- He has a positive view on US Treasuries, especially if corporate earnings suffer and the geopolitical situation deteriorates.
- A correction in equities may still have to go further and caution is in order at the start of the year.
- Prefers US and defensive stocks and says investors should be ready to add European and Chinese stocks later in the year.
“Start defensively in asset allocation, but be prepared to adjust throughout the year,” Amundi said. “Equities will offer entry points during the year. A bottom in 2023 should lead to a radical reversal of positions.