Investors will need to be nimble to take advantage of the opportunities that will emerge during the challenging year ahead, according to a new outlook published by ANZ Private Bank.
Markets will remain under pressure in the first half of the year, ANZ Private Bank’s 2023 Global Market Outlook has predicted, as inflation fears give way to concerns over global growth.
“2023 will be hard-pressed to outdo the challenges that financial markets faced in 2022. However, this year is unlikely to be a smooth ride for investors,” commented ANZ Private Banking head of investment strategy, Lakshman Anantakrishnan.
“While the macro-outlook will remain challenging, unlike 2022, there should be ample opportunity for investors this year — where and when remains the question.”
ANZ Private expects that equity markets will test a new bottom before any sustained rally is able to take place. The firm indicated that its current preference is to be mildly underweight in both Australian and developed market equities and to be overweight in emerging market equities.
Across developed markets, ANZ Private stated that the Australian share market has a higher likelihood of outperforming this year due to its exposure to China, its heavy weighting to resources and banks and the prospect of further rate hikes by the Reserve Bank.
“The fact we are currently positioned with a mild underweight to Aussie shares is reflective of our overweight to Chinese shares within portfolios — which somewhat offsets this mild underweight — and our belief that there is little need to rush into such a position given the likelihood of further pain for share markets before any sustained rally can commence,” it said.
“This pain is something we expect to impact the US share market over the first half of the year as earnings finally reflect underlying weakness and margins come under pressure.”
Mr Anantakrishnan noted that there had been speculation that the recent reduction in the level of rate rises by the US Federal Reserve was a pivot, with the market pricing in cuts for 2023.
“In our view, we believe this is unlikely to occur without material weakness in the labour market,” he said.
“At best, it’s a step down in hawkish narrative; at worst, it’s only served to extend the tightening cycle. We see any rate cuts this year as unlikely unless growth deteriorates to such an extent that the Federal Reserve is forced to blink. Even then, questions remain as to whether it will.”
Based on this outlook, ANZ Private expects to favour bonds over the first half of the year.
“We would look for any sell-off prior to an eventual pivot as an opportunity to build back equity exposure,” said Mr Anantakrishnan.
“Conversely, any rallies in H1 are likely to be taken as further opportunity to reduce equities, before building back exposure once they have bottomed.”
As for other asset classes, ANZ Private said that its current preference is to be mildly underweight listed infrastructure, international fixed income and the Australian dollar and to be benchmark listed real assets, GREITs, high yield and Australian fixed income.
“With challenges but also potential across most sectors in 2023, for investors, remaining nimble within portfolios might be most important of all. But there will be opportunities,” Mr Anantakrishnan concluded.
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
