The main focus for 2023 is still on inflation. This is what we read in the “Macro View 2023” edited by Matteo Manfredi, CEO of Gestio Capitalaccording to which the chances of inflationary pressures easing sufficiently to allow central banks to abandon rate hikes and potentially begin easing need to be assessed.
According to Manfredi, inflation will have a downward trend as global demand slows. This should allow central banks to change direction and could set the stage for the next economic recovery. “There is no certainty that we have overcome the worst market conditions, but the outlines of the next shot are visible on the horizon” writes the top manager.
Asset class views for 2023
Manfredi believes the stock market has limited upside with the risk of a recession on the horizon. Fixed income (especially high yield corporate) will return after experiencing its worst year of returns in 2022. Long-term bond yields should decline moderately with the looming risk of recession. The target for Gestio Capital is 3% for the 10-year US Treasury yield by the end of 2023.
The dollar, the report said, could weaken in late 2023 as central banks begin tapering rate hikes and investors begin to focus on a global recovery. “This could be the trigger for non-US developed market equities to finally outperform US equities given their more cyclical nature and relative valuation advantage over US equities. A weaker US dollar could also be the trigger for emerging market outperformance,” says Manfredi.
What the ideal portfolio should look like in 2023
Overall, writes Manfredi, 2023 will probably be the year of the diversified portfolio, where a traditional balanced portfolio of 60% equities and 40% fixed income is once again the winning choice. “Not to forget the particular liveliness of emerging markets such as India and Pakistan to the detriment instead of continuous uncertainties on the Asian markets” concludes the top manager.