Dubai: Khansa Al Zubayr
Majority of 388 investors polled by MLIV Plus fear; of stagflation accompanied by economic stagnation in 2023, while almost half believe that the scenario that will continue globally is represented by an increase in deceleration and inflation.
They said hopes of a market rebound were premature after this year’s brutal sell-off.
The second most likely is a deflationary recession, while an economic recovery with high inflation is considered the least likely.
The findings point to another challenging year for risky assets after central bank tightening, rising inflation and the impact of the Russia-Ukraine crisis led to the worst rout for equities since the global financial crisis.
Against this gloomy backdrop and with equities rebounding in the fourth quarter, more than 60% of respondents said investors around the world are still very optimistic about asset prices.
Things will remain difficult next year, said Nicole Kornitzer, portfolio manager of the Buffalo International Fund at Kornitzer Capital Management, which oversees about $6 billion.
Dollar Weakness At the same time, around 60% of respondents expect the dollar to weaken further in a month’s time.
This contrasts with views last month, when nearly half of respondents said that by the time the Fed arrives in November they will be long the dollar.
The strength of the US currency this year has affected many asset classes, including other currencies, such as the euro, and emerging market equities.
Some experts believe the dollar is likely to weaken throughout 2023; Perhaps not dramatically, but the trend is likely to be bearish as they believe the US recession and the direction of interest rates will be the main catalysts for the currency.
Fed Action All eyes are on the Fed’s move in 2023 with the potential to further stifle growth as interest rates stay high for longer; It’s a system its president, Jerome Powell, had previously warned about.
Another potential risk in 2023 is developments in the housing market in the UK and Canada, with respondents seeing a 20% higher chance of an accident in those countries than in others.
The jump in borrowing costs has forced some potential buyers out of the market and fueled forecasts of lower home prices.
On top of all this, the economy is under another pressure, which is China’s strict policy to implement the “zero Covid” approach, as the number of cases is approaching record highs, amid growing protests against the precautionary measures in the country. More than half of respondents expect the S&P to finish 2023 in the range of 10% below or above; This is in line with “Wall Street” expectations, while some strategists at Morgan Stanley, Goldman Sachs and Bank of America believe it will remain relatively unchanged 12 months from now.
Europe is also expected to experience economic contraction, the United States may show only modest growth and China will no longer realize its ambitions.
Some pundits have said the first half of 2023 will be dominated by the high interest rate issue and expect the market rhetoric to shift later, in the third and fourth quarters, towards low growth and stagnation.
nice perspective
Despite all this pessimism, respondents said: US inflation is more likely to fall below 3% in 2023 than to exceed 10%, which means some recovery at the end of the year.
This will be good news for Fed officials who have already indicated they are inclined to move to a 50 basis point hike in December to mitigate the risk of too much tightening.
In terms of opportunities, respondents see an opportunity to grab long-term bonds and technology stocks, among others. Both of these asset classes have been hit hard this year by the sharp rise in interest rates.
Most respondents ruled out the possibility of an escalation of geopolitical conflicts next year, for example China and Taiwan as well as NATO and Russia.
