The general expectation of a normalization of prices in 2023 opens one positive scenario for investors, who will still have to know balance le long-term prospects with short risks, both in terms of duration and equity exposure. While the outlook remains complex, they are nonetheless present opportunities to generate long-term returns.
It's the predictions Roberto Rossignoli, Portfolio Manager of Moneyfarm, the independent financial consultancy company with a digital approach, founded in 2011, specialized in medium-long term investments. "The market valuations are attractive e, especially for bonds, are better than in all the other years in which Moneyfarm has carried out its strategic asset allocation process. This is definitely good news for investors. Before increasing portfolio risk exposure, however, markets need to continue on the promising trajectory of recent months,” says Moneyfarm.
The good news is that in 2022, markets have already priced in on recessionary expectations
Markets moved ahead last year and have already factored into equity prices and valuations the possibility that this year there could be a recession: this translated into the dramatic declines that were seen in 2022, even if, on the other hand, the companies showed stable profits. Furthermore, last year we witnessed the structural problem solving such as supply chain bottlenecks and effective monetary policies.
"The prospects for investors remain complex and for Moneyfarm analysts it is necessary that the markets continue on the promising trajectory of the last few months before increasing the risk exposure of the portfolios” says Rossignoli. “Providing an answer is not easy but to have a clearer idea of what to expect from the new year, we need to focus on three key factors: economic growth, inflation and monetary policy”.
In 2022 we did not see the economic deterioration that had been feared. On the contrary
Last year, despite the pessimistic view of the operators, we did not witness a widespread deterioration of the economy, indeed the actual data on consumption, the labor market, inventories, the unemployment rate, car registrations and real estate affairs were marginally positive in the United States and even higher than the average in continental Europe.
Definitely the increase of inflation created an unforeseen situation, causing uncertainty and panic in businesses, but “going into 2023, the general expectation is that prices will tend to normalize.” “While it is too early to say that inflation has been tamed, it is also true that the trajectory of prices has become more predictable”.
Furthermore, it must be considered that the recession in 2023, taken for granted by 80% in the Eurozone and 65% in the United States, has already been incorporated into the prices of 2022. Indeed, they tell Moneyfarm, a slowdown of economic activity could also be good news for the investor because would reduce the upward pressure on prices and thus would ease central bank monetary tightening.
On the other hand, “as the economic situation deteriorates, pressure on earnings will increase and companies may prove to be less resilient than in the past,” says Moneyfarm. "The slowdown in economic activity will likely start to affect the labor market, which in turn will have an impact on wages."
Eyes on the ability of central banks to govern events
If anything, it will be necessary to verify whether “le central banks they will be able to intervene and support the market in case of recession. The consensus seems to indicate yes, especially in the United States. As things stand right now, the trajectory of the economy might make a relatively soft landing realistic, but the plane hasn't touched down yet and a lot could still go wrong.
Furthermore, there is the possibility of a stronger-than-expected recession which could create some instability within the financial system.
