Amundi’s latest investment outlook titled, Some light for investors after the storm, offered an optimistic projection of 2023 after what are expected to be some steep challenges for investors to overcome.
Vincent Mortier and Matteo Germano, Amundi group CIO and deputy group CIO respectively, revealed the movements that investors are likely to see and should consequently prepare for as we head into 2023.
“2023 will be a two-speed year, with plenty of risks to watch out for. Bonds are back, market valuations are getting more attractive, and a Fed pivot in the first part of the year could trigger interesting entry points,” the pair said.
1. The Russia-Ukraine conflict will catalyse a regime shift
The shift in question will feature higher inflation, geopolitical uncertainty, and a tug of war between monetary and fiscal policy, in a world already flooded by debt, the pair noted.
“Expect economic divergences to intensify,” according to Mr Mortier and Mr Germano.
2. Europe’s energy crisis will drag Europe into a recession
With the main economic driver in Europe being the “energy shock”, Amundi speculated that this will generate a cost-of-living crisis followed by a slow recovery.
“Gaining strategic energy independence and signing new commercial ties will be key in a transformative year,” the CIO and deputy CIO commented.
3. China’s economy may flip a coin
Amundi was optimistic that China’s economy will see positive outcomes in 2023 but said that this would largely depend on the housing market and COVID-19 policies.
“On the former, we see a stabilisation thanks to looser policy; on the latter, a gradual relaxation of restrictions. Geopolitical pressure and an intensifying US-China confrontation are key risks,” the two executives explained.
4. Central banks will take further measures to fight inflation
While tightening from banks still has further to go, Amundi forecasted a slower pace than that witnessed in 2022.
“Financial markets may have integrated the bulk of the future hikes, but the level of the Federal Reserve’s terminal rate will be critical: if close to 6 per cent, a US recession will be in the cards and could be more severe than what is expected today.”
5. ‘Glass-half-full’ projection for market valuations
In the wake of the “great repricing”, market valuations are more appealing, according to the asset management company. Amundi projected that markets will start pricing a pivot from the Federal Reserve between Q1 and Q2 while volatility remains elevated.
“Follow the sequence: start with a cautious positioning as the earnings outlook is weak, but prepare for entry points with a gradual approach,” Mr Mortier and Mr Germano instructed.
6. ‘Bonds are back’
The investment outlook asserted that this theme remains true entering 2023, with a focus on high-quality credit, an active duration stance, and currency management in a world of diverging policies.
Mr Mortier and Mr Germano advised investors to “pay attention to liquidity risk and corporate leverage”.
7. Equities will offer ‘entry points’ during the year
They encouraged investors to “start cautiously, favour US stocks and the quality/value/high dividend tilt, but be ready to add Europe and China stocks, and also cyclical and deep-value ones to play the rebound”.
8. Emerging markets divergences will intensify: ‘Selection will remain crucial’
Mr Mortier and Mr Germano advised investors to look toward countries where inflation and monetary projections appear more benign and expect the “Fed pivot to support EM equities”.
9. Geopolitical and economic tensions have cemented an ESG focus
“Investors should play the energy transition and food security themes, accelerate the net zero path, and look for companies that can improve their ESG profile,” the pair said.
The climate of the labour market and higher inflation in tandem is additionally projected to shine a spotlight on social wellbeing and themes.
10. The 60:40 allocation revival is on the horizon
Looming recession risks will call for a diversified portfolio and will revive the “government bond diversification engine,” Mr Mortier and Mr Germano concluded.
