In our 2023 Investment Outlook, we seek to guide investors at a pivotal moment for the global economy. We live in an age of transformation, with surging inflation and fundamental geopolitical shifts leading to rising demands on governments.

A sustainable recovery

In the terms of the progressing green transformation, we believe that, as investors, we must continue to focus our resources on sustainable long-term growth. We see opportunities in the shift leading to, for example, green hydrogen, restoring natural capital or building green infrastructure.

Investment themes for the long run

Our themes have both a sustainable angle – energy transition and environmental sustainability – and a focus on enduring trends. These trends include innovation and disruption via new technology, the appeal of private markets and the emergence of China. While any significant re-rating of China A-shares may be unlikely now, valuations appear attractive and argue for strategic positioning. Opportunities include consumption upgrading and hard-tech development.

Macroeconomics and markets

These sections highlight that:

• The global economy is on the brink of recession as policy rates shoot higher, Europe faces an energy shock, and China struggles with zero-Covid policies and fragile property markets.
• The Chinese government has scope to stimulate growth, but in the West, government measures to aid households and companies may undermine central bank inflation-busting.
• Equities face a struggle to generate above-average returns, even as the disconnect between still relatively optimistic corporate earnings expectations and economic reality narrows. We are neutral, with deep caution in Europe offset by optimism for US growth stocks.
• Within fixed income, eurozone investment-grade credit offers the most attractive opportunity with wide spreads, but generally good corporate fundamentals.

Source: BNP Paribas Asset Management - 29 Dec 2022

A time for prudence

If 2022 confronted investors with stiff headwinds, 2023 is likely to be challenging as well. After all, financial conditions are all but certain to remain tight and the fundamental reset of macroeconomics and geopolitics is continuing. Investors would thus do well to adhere to a robust investment process and diversify investments broadly, particularly as the transition out of negative rates is behind us. Our House View provides a valuable compass in this regard.

The year 2022 presented investors with a particularly difficult environment. Inflation was a concern going into the year, and the onset of the war in Ukraine drove price levels up further. In response, central banks, first and foremost the US Federal Reserve, brought forward rate hikes and have all but demonstrated their determination to bring inflation down by tightening monetary policy aggressively. Indeed, they will not be able to slow the pace of rate hikes before realized inflation falls persistently.

All the while, growth has been slowing, with the Eurozone and UK even likely to have slipped into recession.

Looking ahead, we expect financial market volatility to remain elevated as risks persist and global financial conditions remain tight. This is likely to create continued headwinds to growth and, by extension, risk assets. Nevertheless, investors can find opportunities, particularly in fixed income, as we show in this year’s Investment Outlook.

I believe that recent months have clearly reiterated the importance of adhering to robust investment principles, following a stringent investment process aligned with one’s long-term financial objectives and seeking broad diversification, including alternative investments. Preserving wealth is our singular focus, and we remain fully committed to this goal as the fundamental reset continues.

Reset is the new reality

The “Great Transition” that we foresaw for 2022 has played out to a much greater extent than we originally envisioned, resulting in a new reality.

Over the past year, geopolitics has made a come- back as a key driver of the global economy. The confrontation between the West and Russia over Ukraine has triggered an energy crisis as well as soaring food prices.

Far from normalizing, international commerce has reorganized according to political alliances, marking the dawn of a multipolar world.

This has resulted in a new economic reality with more elevated inflation and a monetary policy regime prioritizing inflation stability over growth. As a result, interest rates are at their highest in years and economic growth is slowing.

Financial markets could not evade these developments, with equities and bonds firmly in negative territory in 2022. Bonds were unable to act as an effective source of diversification within portfolios (their traditional role), as there was a stronger correlation between the two asset classes due to the turbulent macroeconomic environment and tighter monetary policy regime.

Which leads us to the outlook for 2023: we believe the global economy has undergone a fundamental and lasting reset due to the COVID-19 pandemic, shifting demographics, climate change, weakening business investment in the wake of geopolitical ruptures, among other trends. The fallout is evident in our longer-term forecasts for the global economy, which we expect will grow at a much slower pace than in the 2010–2019 period. Inflation will remain an issue in 2023, though we expect it to eventually peak and start to decline.

As for financial markets, as inflation peaks and monetary policy reaches restrictive territory, fixed income should become more attractive again. This means that the performance of bonds and equities should again diverge, as we expect equity markets could still be volatile in the first half of 2023 as slower economic growth hits company earnings.

We hope you find the insights in our Investment Outlook 2023 useful, as you navigate and adjust to this reset.

Source: Credit Suisse - 29 Dec 2022

For investors, 2022 will not be missed. The year presented a series of firsts and worsts. The tragic war in Ukraine hugely distorted global food and energy supply chains, further emphasized the divide between the US and China – see A greater separation between East and West: G2 polarization intensifies – and accelerated the onshoring of critical business infrastructure. The Fed instigated its fastest set of interest rate increases ever. In doing so, it responded to the inflation it caused by adding excessive liquidity to counteract the effects of the pandemic. As the safe-haven US dollar strengthened, goods almost everywhere else became more expensive, adding to global central bank tightening pressures. These are all sources of instability.

In this environment, equities and bonds declined in tandem by the most ever in 2022, with joint losses of about 20% at the low point. Cash outperformed almost every asset class. As we look ahead, however, we need to remember that markets lead economies. The poor market returns of 2022 anticipate the economic weakness we expect in 2023 – see Roadmap to recovery: Markets lead, the economy follows.

We believe that the Fed’s rate hikes and shrinking bond portfolio have been stringent enough to cause an economic contraction within 2023. And if the Fed does not pause rate hikes until it sees the contraction, a deeper recession may ensue. The most recent inflation data and Fed minutes suggest that the Fed is aware of these risks. Yet Fed policymakers’ tendency toward excess gives us pause as we plan for 2023.

With perfect hindsight, sitting out 2022 would have been worthwhile. But to think that way is dangerous for wealth preservation and creation. One year is just a “moment” in the lifetime of a portfolio. Sidestepping the pandemic and war-laden past three years would have been a major mistake for equity investors. Between December 2019 and November 2022, the S&P 500 Index rose 25% and the MSCI World 15.4%. For 2023, we reiterate the fundamental wisdom of keeping fully invested portfolios – see for example, It is time to put excess cash to work. 

Remember, the world economy is highly adaptive and resilient. So too are markets.

Thinking about 2023

Markets in 2023 will lead the economic recovery we foresee for 2024. Therefore, we expect that 2023 may ultimately provide a series of meaningful opportunities for investors who are guided by relevant market precedents.

First, though, we need to get through a recession in the US that has not started yet. We believe that the Fed’s current and expected tightening will reduce nominal spending growth by more than half, raise US unemployment above 5% and cause a 10% decline in corporate earnings. The Fed will likely reduce the demand for labor sufficiently to slow services inflation just as high inventories are already curtailing goods inflation.

The relative health of corporate and personal balance sheets has delayed an economic downturn, for now. Household borrowing is sustaining growth presently, but this dissaving is likely unsustainable, especially given financial market and real estate price deflation. Also, when short-term rates are higher, there is a natural bias to deferring purchases.

We remind investors that over the past 100 years, no bear market associated with a recession has bottomed before the recession has even begun. (Of course, there is a first time for everything.) We believe that the current bear market rally is based on premature hopes that the recession will not occur – a so-called “soft landing” – and that there will not be a meaningful decline in corporate earnings.

Second, we need to get through a deeper recession in Europe as it struggles through a winter of energy scarcity and inflation. We also need to see a sustained economic recovery in China, whose prior regulatory policies and current COVID policies curtail domestic growth.

Third, we need to see the Fed truly pivot. Ironically, when the Fed does finally reduce rates for the first time in 2023 – an event that we expect after several negative employment reports – it will do so at a time when the economy is already weakening. We think this will mark a turning point that will portend the beginning of a sustained economic recovery in the US and beyond over the coming year.

Source: Citi Global Wealth Investments - 29 Dec 2022

Coming into 2022, our focus – and that of global markets – was squarely on the shape of the post-pandemic economy.

Businesses and investors faced a world of shortages and tectonic shifts in central bank decision-making. Governments grappled with how quickly to pull on the fiscal levers and allow consumers to regain their pole position as the engine of growth. All of this led us to argue at the time that shortages and supply chain disruptions would persist, causing central banks to be even more hawkish – and that both of these factors would drive markets to a far greater degree than most appreciated.

Looking back, it seems as though even we may have underestimated just how influential these factors have been for markets and the global economy. As an untameable virus gave way to untameable inflation, tightening the screws on global policymakers, markets saw (and continue to see) a fair share of fits and dizzy spells, all exacerbated by the war in Ukraine. From goods to services to labour and, perhaps most acutely, to energy, the supply side of the economy has rarely been so disrupted, or indeed disruptive to the outlook.

It is the last of these – energy – that commands our attention this time around. Lower energy prices in 2023 could provide a path for a global economic soft landing by insulating consumers and businesses from the most detrimental of cost increases; it could dissuade inflation-targeting central banks from keeping interest rates prohibitively high for longer. Sustained higher energy prices, on the other hand, would result in ongoing stagflationary risks to the global economy and tighter monetary policy for longer, sapping consumption and business investment – including into the energy sector itself.

Naturally, many variables will determine the course of the world in 2023. But we expect the outlook for energy to be a significant, possibly dominant, factor. That’s why it’s core to the four key themes we explore in the Year Ahead 2023:

1. Finding the Energy: The Outlook for 2023
2. Moving Beyond Gas-Fired Inflation: Prices & Monetary Policy in 2023
3. Fuelling the Fire: Geopolitics in 2023
4. Restarting the Energy Transition: The Nuclear Option

As we look ahead to 2023, the challenges facing the global economy are daunting but not insurmountable. In these pages, we lay out our views on how key themes will shape markets and the economy, fully anticipating that the outlook will present not just unforeseen challenges, but also opportunities. We look forward to working with you as a partner to understand, analyze, and thrive through a period of uncertainty.

Source: NatWest Markets - 29 Dec 2022

Inflation has dogged markets this year and is likely to remain high, bringing an end to the era of easy money and increasing the risk that overtightening by central banks will trigger a sharp recession, an “inflation bust”.

Markets want to believe that central banks will blink and change direction, negotiating the economy towards a soft landing. But in our view, a hard landing remains the most likely outcome in 2023. The previous norm of central bank “whatever it takes” intervention during the financial crisis and the pandemic is going or has gone.

Until markets absorb this fully, we could see sharp rallies on the back of expected action by the Fed, only for them to reverse when it doesn’t materialise in the way they expect. Rates should eventually plateau, but if inflation remains sticky above 2 per cent, they are unlikely to reduce quickly even if banks take other measures to maintain liquidity and manage increasingly challenging debt piles.

A key factor to watch is where the dollar goes from here. In 2022, the strong dollar has proved to be a wrecking ball for other economies, both in the developed world and for emerging countries that rely on hard currency debt. If the Fed continues to raise rates, an even stronger dollar could accelerate the onset of recession elsewhere. Conversely, a marked change in the dollar’s direction, potentially as its relative strength and confidence in monetary and fiscal policy making become an issue, could bring broad relief, and increase overall liquidity across challenged economies.

Other parts of the world are on different trajectories. Japan has so far maintained looser policy settings; but any shift away from its current yield curve control could lead to unintended consequences for the yen and potentially add another layer of risk to the already elevated levels of volatility in FX markets.

Source: Fidelity International - 29 Dec 2022

What Will 2023 Hold for Investors?

2022 will soon be behind us, and not a minute too soon. It has been a year of unprecedented volatility. Inflation at a 40-year high and the fastest Fed interest rate hiking cycle since 1980 resulted in negative returns for most asset classes.

Will 2023 be any better? We think the answer is yes, eventually. Inflation appears to have peaked, which will eventually enable central banks to slow the pace of rate hikes and ultimately shift into a holding pattern. However, risks have now shifted to the lagged impact of aggressive monetary policy tightening on economic growth and earnings.

We see a 70% probability of a global recession, but in our view, it will likely be mild and short-lived. However, the market has yet to price this in, which is why we expect volatility to continue in the first half of 2023. History tells us that markets can rebound before a recovery in the real economy. These rallies are very hard to pinpoint and can happen quickly, making it critically important to stay invested. It’s likely to be a challenging investment landscape, but one that will undoubtedly present opportunities.

Source: BNY Mellon Wealth Management - 29 Dec 2022