2022: annus horribilis…

The year 2022 has been trying on the financial markets with the accumulation of shocks and the return of war in Europe. This context has fuelled runaway inflation and a major energy crisis, particularly in Europe due to its dependence on Russian gas. In response, central banks resigned themselves to sharply raising interest rates and dragging down the ample liquidity that markets had accommodated. Growth slowed sharply but held up thanks to fiscal and fiscal support packages.

Financial asset returns are in the red, with an 18% decline in global equity and bond markets and a 23.6% decline in real estate. In this context, we note the outperformance of British equities and Chinese bonds. Raw materials rose sharply thanks to the energy (+42.3%) and agricultural goods (+12.1%) components, while industrial and precious metals declined. The euro fell 5.9% against the dollar.

The year 2023 opens with a context of high recession risk but which would be limited by its duration and its amplitude. Whatever the cost is not infinite, the return to normality is essential. Growth projections for 2023 in developed countries converge around 0%, and 4% for emerging countries. Global growth would be close to 2%. Headline inflation, even if declining, will remain at a high level. In the United States, on the other hand, we note the strong resilience of the economy and employment, which remains at a high level, to the surprise of the monetary authorities. Finally, in Europe, the situation is more complicated and uncertain in view of the decline in real income and the sources of concern about companies’ margins, doubly penalized by wage increases and cost increases, particularly energy.

The United Kingdom would be the country most in difficulty. In China, the end of the zero-covid policy that supported the prospects of global recovery is worrying in the short term because of the wide spread of the pandemic that could be exported thanks to freedom of movement. In a second step, the economy should recover strongly, which should benefit financial markets (return of elasticity to the economic cycle).

More broadly, the economic and financial outlook for 2023 will continue to be affected by the war in Ukraine, the delayed effects of monetary tightening and the withdrawal of liquidity by central banks. Markets will scrutinize several variables: the terminal level and the pivot of key rates; valuations; the price of raw materials; the dollar/euro parity; flows; and of course liquidity.

In this context, after a difficult transition year, interest rate investments are becoming attractive again thanks to the end of negative rates. We think of money market investments, dated bond funds, government bonds (during the year over the long term), and also equities related to sustainable development, energy transition that underperformed in 2022 (impact of rising rates, growth stocks), reopening and consumption at the end of winter in the northern hemisphere and the Chinese unlocking. The spectre of stagflation seems to us to be averted. We could even see a stronger than expected disinflation in the second half of the year, but the growth/inflation regime will – as in 2022 – be in favour of inflation, with uncertainties about growth (macroeconomic volatility) remaining high.

Source: Ecofi, as of 30 December 2022 – Past performance is not a reliable indicator of future performance. Non-contractual document. This document contains information, opinions and figures that Ecofi considers to be accurate or founded on the day of their establishment depending on the economic, financial or stock market context of the moment. It is for informational purposes only and does not constitute a personalized investment recommendation.

L’Espresso des marchés du 02 janvier 2023
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