Investors’ Outlook: 2023 – Preparing for pivots

We’ve finally left annus horribilis 2022 behind us—and while there are still some gloomy pockets in the economy, some market areas started the new year off on a strong note amid positive developments that give reason for hope.

Europe got lucky energy-consumption-wise in that it experienced a warmer than normal festive season, providing respite from concerns over a worsening energy crunch in the region. The mild temperatures provided the continent with a cushion of relief, even though mid-January saw many parts of Europe hit by a cold snap. Europe has now built up enough gas in storage to cope this year, even with Russian gas completely shut out of the supply chain. Of course, the unseasonably warm weather is a stark reminder that the world is grappling with climate change—a gravely serious challenge that brings energy concerns in and of itself.

Perhaps one of the biggest—and most important—surprises of late has come out of China, where the government has finally eased nearly three years of strict Covid-19 containment measures. The government also moved to support its ailing housing market and eased its crackdown on big Chinese technology companies. The reopening, coupled with fresh stimulus, will help China emerge strongly from a recession. This will also provide a much-needed boost to the global economy, where the US and Europe are seeing economic momentum continue to decline.

Communication levels are also thawing between China and the US. January saw US Treasury Secretary Janet Yellen and Chinese Vice Premier Liu He agree to strengthen communication on macroeconomic and financial issues while attending the World Economic Forum in Switzerland. This alignment feeds hope for improvement in the bilateral relationship between the world’s two largest economies, especially given the climate of com¬petition that has characterized their dynamic to date, and amid current tensions related to technology.

Finally, inflation levels have come down quickly, most notably in the US. What do the decreases, hot on the heels of a year in which the investment community was plagued by recession fears, mean for the months ahead? While it’s true that things could get worse for the economy before they get better, especially as central banks may hang on to their restrictive monetary policies through the first six months of 2023, neither last year’s worries about a deep recession nor fears of lingering high inflation levels currently look likely to eventuate this year. Instead, our base case of a short and shallow recession looks increasingly plausible. Lower inflation and more accommodative central banks are likely to lead to more economic growth in the second half of the year.

In this Outlook, you’ll find our take on the most recent developments in the markets and the economy, including why we see opportunities appearing in emerging-market equities, what to expect in the copper market and what’s next for the US dollar. I recommend you turn to page 8 and read Vontobel Chief Executive Officer Zeno Staub’s recent letter to investors. And starting on page 4, our Chief Investment Strategist Frank Häusler details our asset allocation.

As an active investor, I’m looking forward to sharing my thoughts with you and making the most of the opportunities that present themselves over the course of this year.