by Naomi Rovnick, Alun John and Marc Jones
Jan 3 (Reuters) – The end of the omnipotence of the dollar, the rebound in bonds and the recovery of emerging markets are some of the themes that fund managers are betting on for 2023.
Soaring inflation and the economic shock caused by the rapid rise in interest rates over the past 12 months highlight the extent of the collapse of economies and the direction that central bank monetary policies will take. , that of the United States in the lead.
1/ THE END OF THE KING DOLLAR
The dollar index, which measures fluctuations in the greenback against a basket of six benchmark currencies, rose more than 15% from January to November 2022 as the US Federal Reserve (Fed) raised rates by 375 basis points. period basis.
The relative lull in prices has already allowed the institution to temper the magnitude of its rate hike at its last meeting, a trend that should be confirmed this year.
Joe Little, head of strategy at HSBC Asset Management, estimates that the dollar index should fall by more than 10% in 2023 “due to the peak of inflation and the expected inflection of the Fed”.
The yen could benefit, especially after the surprising decision of the Bank of Japan to ease the control of the yield curve, its main instrument, used to keep its interest rates close to zero.
“If I had to choose one currency against the dollar, it would be the yen,” said Chris Jeffrey, at Legal & General Investment Management.
2/ BUY CHINESE
Investors say Chinese equities are set to return to the limelight as anti-COVID-19 restrictions ease, Beijing refocuses on the country’s growth and the stricken real estate market recovers.
Uncertainties remain high with the resurgence of the epidemic but enthusiasm is undeniable on the reopening of the country and its effects on all Asian capital markets.
The MSCI index of Chinese stock markets gained nearly 40% from November to mid-December and its ascent is probably not over.
BNP Paribas believes that stocks related to travel, domestic consumption and technology can still progress. The French bank has overweighted China in its model portfolio for 2023, which includes Tencent and Trip.com, among others.
3/ RE-EMERGING MARKETS
Buyers are expected to return to emerging markets, which suffered some of the largest losses on record last year.
Provided global interest rates stabilize, China reopens to the world and a nuclear war is averted, UBS expects the emerging markets index to rise.
Jeffrey Gundlach, the managing director of the management company DoubleLine Capital, nicknamed the “Bond King”, the king of fixed income, has made stocks from emerging countries his first choice and Morgan Stanley forecasts a return of nearly 17% for the debt of emerging countries in local currency.
This surge of optimism is not surprising given the rebounds observed after previous soft spots. The MSCI emerging market index climbed 64% in 1999 after the Asian financial crisis a year earlier and 75% in 2009. Emerging hard currency debt also saw a considerable rebound of 30% after falling 12%. during the 2008 crisis.
4/ HELLO, MR BOND
After going through its worst year in 2022, the bond market could recover.
The rise in prices and the muscular offensive of the central banks should indeed settle down this year.
Economists polled by Reuters expect US inflation to decelerate to 3.1% by the end of 2023. Valentine Ainouz, strategist at Amundi, forecasts the yield on ten-year Treasury bills to end at 3 .5% at the end of the year, against approximately 3.88% currently.
Joost van Leenders at Van Lanschot Kempen bought Treasuries last August on the belief that “inflation would decline as economic growth slows”.
5/ ACTIONS: SELL NOW, BUY LATER
Equity investors are hoping that a V-shaped year for the global economy will allow stock markets to end the year in better shape.
JPMorgan strategists expect “market jolts and economic decline” to begin with, then a better second half when the Fed finally decides to “pivot” its monetary policy.
Hani Redha, portfolio manager at PineBridge Investments, predicts further decline in US equities, with a bottom in the first six months of the year. Trevor Greetham at Royal London Asset Management thinks that the slump lasted longer.
“I wouldn’t be surprised if the time to buy stocks is a year or a little more away,” he said.
(Report Naomi Rovnick, Alun John and Marc Jones, graphs by Vincent Flasseur, French version Laetitia Volga, edited by Kate Entringer)