Key points
- While returns in 2023 are not anticipated to be as disappointing for most investors as in 2022, we expect elevated levels of uncertainty and volatility to continue.
- We believe five trends will dominate markets over the next 12 months: (1) inflation, (2) policy, (3) recession, (4) uncertainty and (5) opportunity.
- We have identified a range of investment ideas that we believe may be effective in helping to steer portfolios through the period ahead.
Investment outcomes in 2023 are anticipated to be better for most investors than in 2022. After more than a decade of relatively benign markets, benefitting from low inflation, supportive central banks and moderate economic growth, conditions changed in 2022. With global equities falling 18.0% and global fixed income falling 11.2%,1 investors had only a few places to hide. Historically high inflationary pressures, central banks aggressively raising interest rates and increasing concerns about an economic slowdown or recession weighed on markets. A new regime has come to pass.
We expect more changes in 2023 as the new regime matures, entering a new phase. Inflation is likely to linger at higher levels but recede over time. This above‑target inflation means that many central banks may well have to keep interest rates elevated for a prolonged time. However, while a pivot to monetary easing may be elusive, this tightening cycle is nearing its peak. The global economy is likely to continue to slow down. It is yet unclear whether major economies will slip into recession or manage to avoid it.
Furthermore, geopolitical risks include the ongoing war between Russia and Ukraine, the impact of the post‑COVID reopening and the centralisation of power in China and political polarisation in the US ahead of next year's presidential election. Add to this the recent duress in the U.S. and European banking sectors, and these concerns will continue to have a major impact on sentiment and the direction of the markets, adding to uncertainty. So much change means volatility could remain elevated, ripe with both risks and opportunities.
Our Multi‑Asset Solutions team has identified five key trends that we believe will drive the performance of markets over the coming 12 months, and beyond:
Five Investment Trends for 2023
1 Past performance is not a reliable indicator of future performance. Sources: MSCI All Country World Index (ACWI) measured in US dollars (USD). Bloomberg Global Aggregate Bond Index hedged to USD (see Additional Disclosures).
This post was funded by T. Rowe Price
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