The one we just said goodbye to it was a year of extraordinary events: in January 2022, few would have imagined such a rise in inflation, as well as the climate and health emergencies, wars and conflicts that have rocked 2022.
You can read it in the comment of Nicky Maan, CEO di Spectrum Marketsaccording to which “the approach handed down for last year is even more valid and wise for tackling 2023: that is, preparing for the unexpected, monitoring the still unresolved issues that we carry into the new year”.
Unresolved issues still ongoing
First of all, explains Maan, “China’s sudden turnaround with theabandonment of the zero-Covid policy (determined by internal pressures, rather than external economic factors) which seems to be a far greater gamble than the continuous lockdowns for Beijing, with unclear data and news that are leading to caution and distrust”.
Then there are, adds the CEO of Spectrum, “the outcome of the Russian-Ukrainian conflictescalated into a long and brutal war of attrition, as well as the inflation themestill well above central banks’ monetary stability targets, although the expected decline in energy costs could help bring the situation under control.
Finally, Maan points out, “we are still at the window on whether or not the long-awaited global recession will occur. Although what we are experiencing is undoubtedly a period of economic crisis, the recession has not yet materialized and some signs even indicate that it could be avoided. In the United States, for example, the competitiveness of the labor market is putting upward pressure on wages, which could encourage higher consumption and limit risk. Europe’s dependence on Russian gas, on the contrary, places it in a weaker position, and raises expectations of a possible short recession”.
The effects of a recession
Spectrum’s CEO first explains what actually constitutes a recession and what its repercussions are. “What might seem like an unnecessary semantic quibble is actually the very cornerstone on which investors should build their investment strategy in 2023”: not relying on arbitrary measures such as the concept of “two consecutive quarters of negative growth”, but anticipating the impact that economic reality will have on the areas in which they invest.
The open questions are known and, according to Maan, “long-term inflation and recession expectations have already been incorporated for some time in positioning choices.
How to approach the market
So how to behave in the face of such uncertain markets in which the specter of recession looms? Faced with the decline in growth, explains Maan, “whether it is formally qualified as a recession or not, it has long been recommended to focus on defensive and non-cyclical sectors“.
However, emphasizes the CEO of Spectrum, “it may be worth not only buying in non-cyclical sectors, but also act counter-cyclically. Investors with sufficient risk appetite and risk tolerance can explore short-term opportunities through leveraged products in order to adequately benefit from price fluctuations in an environment of continued volatility.
Maan concludes: “The success of either approach will depend on whether thecurrent downturn is followed by a sharp rebound or from a long and slow recovery path”.