Swiss private bank Lombard Odier and Saxo Capital Markets HK discuss their global investment outlook for 2023, focusing on Asia and the impact of China’s re-opening.
The move came as Stéphane Monier, CIO at Lombard Odier, presented his global investment and macroeconomic outlook for the first half of 2023 at a round table event.
According to Monier, inflation has started its descent, but central banks will remain restrictive for a while. He believes that inflation has peaked and is rolling over thanks to falling energy costs.
Central banks are expected to stop hiking in the first quarter of 2023, he added, but will refrain from cutting rates for an extended period of time to weaken employment further. Meanwhile, the prospect of a full-blown energy crisis this winter in Europe has become less likely, he said. He sees little risk of shortages.
China’s rebound should provide a helpful boost to many emerging markets, Monier continued. After a Fed pivot, he expects emerging assets to rebound. However, a shift in sentiment and growth dynamics is needed.
According to Redmond Wong, greater China market strategist at Saxo: “Investors are rightly looking through the initial shockwave of Covid-19 infection across the country in December and into the start of this year to the subsequent reacceleration of economic activities and credit expansion. The investment case for Chinese stocks in Q1 is strong.”
Saxo believes that China’s reopening will cause another strong year for commodities. “The key macroeconomic event that will drive developments in 2023 has already occurred. The abrupt change in direction from the Chinese government away from its failed zero-Covid tolerance towards reopening and kick-starting its economy will have a major impact on commodity demand at a time when supply of several key commodities from energy to metals and agriculture remains tight.” said Ole Hansen, head of commodity strategy at Saxo.
“The commodity sector remains on a journey towards higher prices and, while the speed of the ascent will slow, we project several years ahead where supply of key commodities may struggle to meet demand. With that in mind, we forecast another positive year for commodities,” he continued.
Monier believes that sovereign and high-quality corporate returns look promising in 2023. He prefers quality and diversification across asset classes, and is looking for quality companies with the ability to defend their margins and which are exposed to China’s re-opening.
He also expects the dollar to weaken further. Global growth and real yield models have turned for a weaker dollar in 2023, he said. Saxo believes that the euro and Japanese yen may prove the safest harbours in the first half of the year.
Monier expects high yield credit to become increasingly attractive in 2023. And, as investor sentiment improves, appetite for risk assets will increase.
He believes that gold’s appeal will increase in 2023. With lower rates, a weaker US dollar, and China reopening, gold prices should rise.
Lombard Odier’s portfolio positioning in 2023 reflects a cautious view. They are underweight in cash, overweight in fixed income, with a focus on US treasuries and investment grade credit. They are also neutral on equities (overweight on emerging market equities, underweight on developed markets) and overweight in alternatives.