Robeco: things that could derail 2023 investment outlook

Oksana Patron

13 January 2023

Greenwashing, regime changes and a “wary eye on social media” have been flagged among the key trends by Robeco with a potential to derail the global 2023 investment outlook.

According to Colin Graham, Robeco’s head of multi-asset strategies, there were seven more “black swans” awaiting investors this year but the key points also included potential for a Ukraine peace dividend and net-zero investments and upsets caused by targets for inflation and interest rates.

The manager has warned that the drive by the companies to become more environmental, social, governance (ESG) compliant often led to a rise in greenwashing where firms and investors were making claims that could not be substantiated.

On top of that, there was a growing problem with impact washing where companies were claiming to make an impact on the ground when proving or even measuring was doubtful which caused a stronger scrutiny of their sustainability claims from the regulators, media and investors.

“Rather than focussing on improving their ESG and delivering shareholder value, companies could end up selling or divesting businesses that don’t meet ESG criteria and withdraw from markets where regulators demand higher sustainability credentials,” Graham said.

At the same time, he pointed to social media which had potential to become another battlefield, with stricter regulation against the tech giants that fuelled growth stocks and said that this could benefit value stocks instead.

“We could see another backlash against social media and more regulation on large technology and social media platforms as data protection issues come to the fore again. The result would be a change in equity market leadership – value companies with capital discipline and quality earnings would be more highly rewarded on a relative basis,” Robeco’s head of multi-asset strategies said.

On top of that, last year was characterised as a s ‘shock regime change’, with the UK having gone through three prime ministers and this year the global markets could see a major shit in policy as major regimes topples, he said.

The other major surprises that investors might face this year included the potential that high yield bonds could become attractive and beneficial for multi-asset investors if the US inflation peaks without recession, the dollar drops while the post-Covid fiscal expansion slows, acting as the brake on excess demand.

However, investors should be also ready that the Fed could review its inflation target, citing a structural break with the previous regime that had largely been in place since the global financial crisis, and could claim that the 2% target is far too close to zero, saying the next recession could tip the economy into outright deflation.

According to Robeco, the result would be panic, and bonds denominated in US dollars would see negative returns for the third year in a row.

Graham also stressed that investors should be prepared for the potential of ‘deflation disaster’, rewards for risk and a more welcome disruption if peace breaks out in Ukraine.

“We could see a peace dividend in which Ukraine secures its borders with European ‘aid’ and the flow of wheat, oil and gas resumes, ending the bottlenecks.

“Other countries would then relax their travel and trade restrictions, allowing inflation to fall and supply chains to re-shore faster. There would be an energy costs windfall for global economies, especially in Europe.”