Playing it safe in 2023, but not too safe

AS we enter 2023, investors’ scars from last year’s sell-off across publicly traded markets are still very raw. Against this backdrop, the theme of our 2023 outlook, “Playing it SAFE”, should resonate with investors. We believe sequencing your investments is going to be important in the coming year: Bonds are a good place to start, given some of the highest yields offered in a decade, and our expectation that a recession is likely in the US and Europe in the first half of the year.

Once the Fed pivots from focusing on bringing down inflation to supporting growth, likely in the second half of 2023, equity markets are likely to become increasingly attractive.

In Europe, tightening monetary policies and the aftermath of the energy price shock are likely to weigh on an already fragile economy. In the US, the Federal Reserve is focusing on lagging indicators – namely inflation and the labour market. Inflation is, by definition, a reflection of how much prices have increased over the past 12 months. It gives very little information as to the outlook over the next 12 months.