(BFM Bourse) – The inflation trend will remain the most important parameter to watch and the potential gains that strategists expect on equity indices should be concentrated in the second half of the year.
The year 2022 has been anything but easy for investors: interest rate hikes, tighter monetary policy, inflation out of control and, unfortunately, conflict in Ukraine.
An explosive cocktail that greatly tested the resilience of stock markets. The CAC 40 thus fell by 9.5%.
The year 2022 has been “extraordinary: it is the first time in recent history that risky assets, such as shares or credit, as well as defensive assets such as public bonds, have fallen sharply in parallel”, emphasizes Xavier Chapard of La Banque Postale Asset Management.
The 2023 vintage promises to be complicated once again for this asset class and “doesn’t risk being easy”, judge Xavier Chapard. “The global slowdown may be steeper than expected as a result of shocks in 2022. The slowdown in inflation may be slow because the spirit is out of the box. And central banks are likely to be permanently tighter than expected. ‘markets hope’ , he develops. “When 2023 dawns, the ‘wall of concern’ remains,” said asset manager Carmignac.
Atlantic Financial Group goes so far as to fear that 2023 will be “the year of capitulation for equity investors” and believes that “the bottom could be reached in the final months” of the coming year.
Heading for a brighter second half of 2023?
Not all financial intermediaries are so pessimistic. “High inflation, rising rates, falling growth estimates make the short-term risk/reward ratio unfavorable for markets,” UBS said. But the Swiss bank believes that a more favorable context should emerge during the year.
Bank of America, for its part, estimates a “likely” recession during 2023 for the US and the eurozone, forecasting a 0.4% drop in GDP next year for the world’s largest economy and stability for the eurozone, while China would see growth reach 5 .5%. However, the American bank estimates that the markets should regain appetite for risky assets, such as stocks, from the middle of the year.
This is confirmed by a Bloomberg survey cited by John Plassard, investment advisor at Mirabaud, conducted among managers. According to this study, the gains that the stock markets are expected by strategists will be concentrated in the second half of 2023. Patience and long time therefore…
Inflation as the main theme
According to another survey by Bank of America, investors’ number one fear for 2023 remains that inflation will continue at higher levels than expected. Then comes the fear of a deep recession, a more restrictive central bank monetary policy than expected, and then a worsening of the geopolitical situation.
If the development of inflation will therefore still be the main theme that will drive the market in 2023, the price increase should nevertheless slow down next year, according to the expectations of the financial intermediaries. Swiss Life Asset Managers predicts an average interest rate of 3.9% for 2023 in the US and 6.2% for the euro area. Bank of America, for its part, expects 4.4% in the US and 5.6% for the euro area. The figures compare with one-year interest rates in November of 7.1% for the US and 10.1% in the euro area.
In this context, UBS predicts a decrease in earnings per stock for Eurozone companies of 5% in 2023 and a 4.4% decline for those making up the S&P 500.
Heading for a Limited Rise in European Equities?
In terms of stock market developments, Bank of America expects the Stoxx Europe 600 index to fall to 365 points during the second quarter of 2023, before rising again at the end of the year towards 430 points, or roughly the same level as at the end of 2022 (425 point).
Strategists polled by Bloomberg expect an average Stoxx Europe 600 index of 449 points, up about 5.6% from current prices. For the S&P 500, another Bloomberg survey shows strategists expect an index of 4,078 points, up nearly 7%.
At a sector level, next year UBS favors consumer staples, traditionally well-positioned in a recession, healthcare for its defensive qualities, and oil, as companies in particular should continue to post robust results. shareholder.
The Swiss bank, on the other hand, remains on the sidelines of the technology, consumer discretionary and industrials sectors.
Bank of America, in a note centered on the euro area, also favors defensive stocks, citing pharmaceuticals, chemicals, food, beverages, telecommunications or even, on technology, companies centered on software. On the other hand, the bank has a negative attitude towards banks, cars, oil companies and even “capital goods”, i.e. capital-intensive goods (aviation, railways, electrical equipment).
Julien Marion – ©2022 BFM Bourse