Plenty of risks to watch out for: Amundi’s 2023 Investment Outlook

Oksana Patron

7 December 2022

Investors can expect “some light after storm” in 2023, however inflation, geopolitical uncertainty and intensifying economic divergences will still be the main themes, according to the Amundi 2023 Investment Outlook.

The Russia-Ukraine conflict would continue to act as an accelerator towards a regime shift next year, the group’s chief investment officer, Vincent Mortier and deputy group CIO, Matteo Germano, said in the paper.

This would feature higher inflation, continued geopolitical uncertainties and a tug of war between monetary and fiscal policy against the background of intensifying economic divergences.

Further to that, Europe’s energy independence and potentially new commercial ties would be key as the energy crisis, particularly towards the end of the next year, would be a decisive factor in the continent which could fall into recession.

At the same time, China’s economy might deliver positive surprises, given the stabilising housing market, helped by looser policy, and combined with a gradual relaxation of COVID-19 policy and restrictions. However, the key remaining challenges for China next year would be geopolitical pressure and ongoing tensions with the US.

According to Amundi’s outlook, central banks would continue to be busy fighting inflation in 2023 although the tightening cycle would see a slower pace, with level of the Federal Reserve (fed) terminal rate being critical, and if it getting closer to 6%, meaning the US  economy might fall into recession.

As far as the markets were concerned, the report stated that after the great repricing valuations began to appear more appealing.

“While economic conditions deteriorate and volatility remains elevated, markets will start pricing a Fed pivot between Q1 and Q2. Follow the sequence: start with a cautious positioning, as the earnings outlook is weak, but prepare for entry points with a gradual approach,” Amundi said in the paper.

Following this, investors should be aware that ‘bonds are back’ theme would remain the main theme next year, with a strong focus on high-quality credit and they should pay attention to liquidity risks and corporate leverage.

This would also mean that 60/40 allocation approach would see a revival and a persistent inflation would make investor look for greater allocation towards real assets and to sectors more inflation resilient.

In terms of equity market, Amundi said: “Start cautiously, favour US stocks and the quality/value/high dividend tilt, but be ready to add Europe and China stocks, and also cyclical and deep-value ones to play the rebound.”

While the environmental, social, governance (ESG) themes, reinforced by the COVID-19 and the war in Ukraine, would make investors look for companies with improved ESG profiles, the emerging markets divergencies would intensify in 2023 and selection of the right markets would remain crucial.

According to Amundi, investors should look at countries with more benign inflation and monetary outlooks and expect the Fed pivot to support EM equities.

“20234 will be a two-speed year, with plenty of risks to watch out for. Bonds are back, market valuations are getting more attractive, and a Fed pivot in the first part of the year could trigger interesting entry points,” Mortier and Germano said.