Despite elevated levels of uncertainty and volatility, investment outcomes in 2023 are likely to be better compared to last year for most investors, as per T. Rowe Price. Moreover, the asset manager believes five key investment trends will influence markets over the next 12 months. They are — inflation, policy, recession, uncertainty and opportunity.
“After surging to multi‑decade highs in 2022, inflation is likely to recede erratically in 2023,” opines Yoram Lustig, Head of Multi-Asset Solutions, EMEA & Latam at T. Rowe Price.
According to Lustig, inflation in the US and Europe is expected to recede in 2023, but global inflation may rise after China’s economic reopening.
Furthermore, the asset manager predicts that monetary policy tightening will likely peak in 2023. “Until they can declare a victory in the war against inflation, central banks are likely to keep policy rates in restrictive territory,” writes Lustig.
“The good news is that markets should not undergo the steep tightening of financial conditions experienced in 2022, as central banks move to pause hikes as disinflation sets in,” he adds.
Additionally, T. Rowe Price believes that a recession in 2023 is a risk as well as an opportunity. This is because recession removes weaker companies from the market while stronger businesses emerge, resulting in a reasonable allocation of capital.
Among other major investment trends in 2023, geopolitical events and polarisation in politics will create an environment of uncertainty, claims Lustig. “When geopolitical events drive sentiment, markets can oscillate between risk‑on and risk‑off, challenging logical, fundamentals‑based investing,” he writes.
In terms of new opportunities, the asset manager believes that change and more reasonable valuations will open new avenues for long-term investors in 2023. According to Lustig, last year saw a fall in valuations. However, he believes that lower valuations now will translate to higher expected returns in future.
“One theme woven across all others is change. Some existential risks, such as wars, climate change and social transformation, create uncertainty. However, they also bring opportunities for investors who can lean into the change and benefit from its disruption,” the asset manager concludes.
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