2022 was a year best forgotten
The combined impact of geopolitical incidents, the lingering after-effects of the pandemic and vigilance from central banks triggered analysts to continuously revise inflation forecasts upwards and growth forecasts downwards over the past year.
Financial markets have been worried about how far central banks should go to suppress inflation since the spring of 2022, which explains the successive waves of optimism and pessimism on the financial markets.
On balance, 2022 was a weak year for investors, with both stock markets and bond markets closing below their start-of-year levels.
Attractive opportunities in 2023… but patience is key
The outlook for 2023 is promising, with shares averaging 15% to 20% below their record highs and yields hovering around 2.5% to 3.7% for safe government bonds and even reaching 4% for corporate bonds.
The easing of China’s zero-Covid policy and the improving economic outlook in Europe are encouraging investors, resulting in a strong start to 2023 for European and Asian stock markets.
There is a real chance that investors will face higher interest rates for some time to come. The Fed and ECB have rarely raised interest rates at such a rapid pace. We will have to wait and see how this will ultimately impact consumer and business spending.
Share prices have factored in the end of low interest rates for quite some time, but they have not allowed for the impact of slowing growth on corporate earnings. Analyst forecasts for earnings in 2023 are still positive, though they could well be revised during the year.
Getting on board at the right time
We are still waiting for the best time to go all in on shares, but we are ready to adjust our course if the economic picture turns out better than expected. Likewise, we will quickly change course if the market were to show a highly negative response to economic headwinds. The same goes for bonds. Once interest rates have peaked, we will rapidly increase the weight of bonds in the portfolios.
In short, a little patience and the right timing are the key ingredients for making 2023 a good investment year – in any event, it’s sure to be exciting.
"2022 has been a year to forget. Stock market recovery and rising bond yields could make 2023 a good investment year. However, persistently high inflation and further rising interest rates could translate into a far weaker economy and far lower corporate earnings in the short term. We remain cautious for the time being, but continue to closely monitor developments to be ready to change course.”
IMPORTANT! This information contains marketing material and does not constitute investment advice, advice, investment research or investment recommendation and should not be construed as such. The information used has been taken from publicly available sources, is correct at the date of publication and may change in the future. Investing in mutual funds involves certain risks. The value of units and the income from them may decline. Returns are not guaranteed and there is a risk that investors may not recover the full amount of their investment. Investments in mutual funds are not guaranteed by a guarantee fund established by the State or any other type of guarantee, and the investments of the fund itself are also not guaranteed. The future performance of the mutual funds is not necessarily linked to the performance of prior periods. The information presented is not a recommendation to invest in financial instruments, including shares of mutual funds organized and managed by KBC Investment Management LLC and should not be construed as such. Investors are advised to read the current prospectuses and rules of the Mutual Funds before deciding to invest. Full prospectuses and further information on the Mutual Funds can be obtained from the offices of KBC Investment Management EAD and KBC Bank Bulgaria EAD, and on KBC Investment Management's website: www.kbcinvestment.bg.