Valuation Commentary
January 2023
2022 started with great confidence, only for this to be quashed in the first quarter as Russia invaded Ukraine and China reinforced its zero Covid policy.
The year should have been characterised by the moderation of inflation. The reverse was true, leading Central Banks to make the most aggressive rate increases witnessed. Markets became fearful, leading to the worst calendar returns posted since the Global Financial Crisis (GFC). There were few places to hide, even government bonds, that are considered amongst the safest of safe havens, failed to protect. There was one area of optimism; our renewable energy holdings performed well, until the government decided to employ windfall taxes. We have already covered the events of 2022 in great detail so we will focus on our expectations for 2023:
Inflation will moderate over 2023, with the worst of market falls behind us, although short term pullbacks should be expected.
Recession is on the horizon for the UK, although consensus forecast is for it to be shallow.
Client mandates were moved to their lowest risk levels through 2022, reflecting the deteriorating outlook.
In 2023 we anticipate less bad news; inflation will moderate, but interest rates will rise. Equity markets are cheap relative to recent history, with our next move being positive, increasing risk exposure in client portfolios. In this context, ‘risk’ means adding investments to the portfolio which, in the shorter term, are likely to experience greater fluctuations in price and have less certain returns than other investment classes but have greater potential for upside.
The challenge is one of timing; adding risk this year is most probable, the exact when is being debated by your investment team.
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