Amundi Asset Management has released a new paper covering its 2023 Investment Outlook, titled “Some light for investors after the storm.”
We present here the CIO convictions from Vincent Mortier (Group CIO) and Matteo Germano (Deputy Group CIO).
“2023 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.”
- The Russia-Ukraine conflict is acting as an accelerator towards a regime shift, featuring higher inflation, geopolitical uncertainty, and a tug of war between monetary and fiscal policy, in a world already flooded by debt. Expect economic divergences to intensify.
- The energy crisis will be the main economic driver in Europe, which will fall into recession. Fiscal measures may mitigate this, but the moment of truth will be in Q4 2023, when gas inventories need to be restored. Gaining strategic energy independence and signing new commercial ties will be key in a transformative year.
- China’s economy could unveil positive surprises in 2023, depending on the outcome of the two main challenges: housing market and Covid-19 policy. On the former, we see stabilisation thanks to looser policy, on the latter a gradual relaxation of restrictions. Geopolitical pressure and an intensifying US-China confrontation are key risks.
- Central banks (CB) will do whatever it takes to fight inflation and avoid a 1970s-style crisis. The tightening cycle has further to go, although at a slower pace than in 2022. Financial markets may have integrated the bulk of the future hikes, but the level of the Federal Reserve’s (Fed) terminal rate will be critical: if close to 6%, a US recession will be in the cards and could be more severe than what is expected today.
- After the great repricing, market valuations are more appealing; this is the glass half full. 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.
- ‘Bonds are back’ remains an investor theme entering 2023, with a focus on high-quality credit, an active duration stance, and currency management in a world of diverging policies. Pay attention to liquidity risk and corporate leverage.
- Equities, in our view, will offer entry points during the year. 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.
- Emerging markets (EM) divergences will intensify in 2023. Selection will remain crucial. Look at countries where the inflation and monetary outlooks appear more benign and expect the Fed pivot to support EM equities.
- Long-term ESG themes were reinforced by the Covid-19 crisis and the Ukraine war. Investors should play the energy transition and food security themes, accelerate the Net-zero path, and look for companies that can improve their ESG profile, notably thanks to active engagement.
- The 60-40 allocation revival is in sight, as looming recession risks will mean the government bond diversification engine will work again. Persistent inflation will call for greater allocation towards real assets and to sectors more resilient to the different inflation sources.
More from the 2023 Investment Outlook can be read here.
