The past year has seen the end of a number of assumptions, and 2023 is one that Geneva-based Apricus Finance is moderately optimistic about. But some threats remain, he says.
Geneva-based Apricus Finance is underweight equities, neutral fixed income and holds gold; he adopts a moderately positive vision for 2023 but is aware of several threats.
The wealth management firm said in its overall equity position it had a “very significant overweight” to continental Europe and a large underweight to US stocks. It is neutral on UK and Japanese stock markets and overweight on Asia ex-Japan thematic stocks. (See a previous report on his views here.)
“We think inflation has peaked, at the start of the summer in the US and at the end of 2022 in Europe. In the US, inflation could surprise on the downside this year. the market underestimates the deflationary power of consumer and durable goods, as well as falling house prices, while we recognize that services inflation could stay higher for longer,” said Apricus Finance in a note on his investment thinking.
“As highlighted in December, the American consumer is not so healthy. He has already spent his pandemic savings and financed his recent expenses with credit cards,” he said.
The external asset manager (EAM) has a neutral stance on fixed income securities; it is underweight euro and dollar high yield debt and overweight euro and dollar investment grade bonds.
In currencies, Apricus Finance is positive on the euro against other major currencies, it is overweight commodities and has a long position in gold.
As the cycle progresses
Apricus Finance said it believed central banks were “actually much further along in their tightening cycle.” (A number of central banks, such as the US Fed, European Central Bank and Bank of England, raised rates last week.)
The firm said the Federal Reserve’s recent comments about its desire to crush inflation should be “put into perspective” because a year ago the Fed forecast inflation of 1% this year.
In Asia, it seems that China’s abandonment of a zero Covid policy has paid off, with the population gaining “herd immunity” and allowing the economy to reopen, to the benefit of the rest of Asia and Europe.
As for the risks of recession, they have been widely predicted but it is possible that the world avoids this fate, said Apricus Finance.
On the US, the company said US earnings and revenue expectations need to be adjusted lower; in Europe, where stocks value forward earnings at 11 times, valuations price in a recession, but not the US market, at 17 times.
Threats
Apricus Finance said there were a few threats to consider, such as a tough debt ceiling negotiation in the US Congress this year, raising the risk of a prolonged federal government shutdown. Another threat is the risk of inflation becoming entrenched; China is stumbling in its reopening and Russia is no longer willing to wage a proxy war against Ukraine, increasing the risk of a direct military confrontation with NATO. Other threats include a Chinese invasion of Ukraine.
Looking back to 2022, the report noted that it was the end of an era for a number of themes: the end of fiscal stimulus and quantitative easing; the end of the “scandalous outperformance of American megacaps”; the “end of investors seeking companies with attractive new technologies that may never turn a profit”; the end of the “belief that the number of service subscribers and the advertising pool could be unlimited”; “the end of the belief that the transition to renewable energy could be quick and cheap”; and the “end of the chimerical dream of a decentralized financial system, independent of governments and central banks, which offers exorbitant risk-free rewards”.
