"2023 can only get better" - investment expert on the prospect for investors

Created: 01/12/2022 08:39

By: Andreas Hoess

Praying for improvement: The Ukraine war, inflation and interest rate hikes plunged stock markets around the world into a crisis in 2022.

Now the stockbrokers hope, like here on Wall Street in New York, that things will go up in 2023.

© Bryan R. Smith / AFP

Due to various crises, 2022 was not a good year for many investors.

Does the world's largest fund company Blackrock expect a recovery on the stock exchanges?

An expert takes a stand.

Munich/Frankfurt – 2022 was also a devastating year for the stock exchanges.

From the beginning of January to the end of September, the leading German index, the Dax, fell by more than 20 percent.

Just because he has since recovered, the bottom line minus is reasonably limited at around ten percent.

But what happens next?

We asked the capital market strategist Martin Lück from Blackrock.

And the world's largest asset manager, with assets equivalent to around eight trillion euros, has good news: the worst could be over for the stock markets.

Mr. Lück, 2022 was a miserable year for the stock market.

What was the issue?

Martin Lück:

In 2022, a lot just came together: the supply chain problems, the energy price shock after the Russian attack on Ukraine, the high inflation, the rising interest rates, which have hit the economy and consumers.

That was a typical stagflation year.

And this mix of economic stagnation and rising interest rates is poison for the stock markets.

At the same time, the global bond markets have collapsed by almost 15 percent.

This was fatal for mixed portfolios of stocks and bonds.

So 2023 can only get better!

Or?

Lück:

There is a lot to be said for that, because it can hardly be much worse than 2022.

Further increases in interest rates could still weigh on bond prices.

But the stock markets are likely to have digested many of the risks, and things could go up again here.

But will that be enough to make up for all the losses from 2022 in 2023?

I'm not so sure about that.

Approximately how high will the plus be?

Lück:

I think profit growth of between five and ten percent is realistic, more likely not.

Because risks and problems such as the Ukraine war or high energy prices remain.

Europe will plunge into recession at the beginning of 2023, so the stock markets are likely to start 2023 with a headwind.

But that could change over the course of the year.

Many companies around the world have largely adapted to the new situation and are likely to have weathered the worst.

Securities: The Ukraine war and its effects on the stock exchanges

What if the Ukraine war escalates further?

Lück:

It is still unclear how Russia's war against Ukraine will continue.

A further escalation would primarily have consequences for the people affected by the war.

It would also hit the stock exchanges.

But you should not only have horror scenarios in mind.

Positive turns are also conceivable, in which the courses could suddenly develop positively.

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Which one?

Lück:

Three examples.

First: Russia gives in and the Ukraine war comes to an orderly end.

Second: China and the West rely more on cooperation than confrontation.

Both would be an enormous relief, we would have a more peaceful and predictable world again.

And thirdly, the central banks decide that they can live with higher inflation and stop raising interest rates any further.

This would ease the situation on the stock exchanges.

And then our estimates would probably be too conservative.

How likely is that?

The central banks were forced to raise interest rates sharply.

Lück:

Not so unlikely.

For the coming year, we still anticipate five to seven percent inflation.

However, we do not assume that the central banks will continue to take one large interest rate step after the other in order to bring the rate down to the target of two percent.

They will accept higher inflation.

Also in Europe?

Lück:

The conditions here are somewhat different.

In the US, inflation was triggered by a demand shock as Americans emerged from lockdown armed with checks and spent with both hands.

The peak has been reached there and inflation is falling slightly, which is why the US Federal Reserve is already raising interest rates more slowly.

In Europe, inflation set in later and was more driven by energy prices.

It remains to be seen how the European Central Bank reacts further.

Elon Musk also lost a lot of money in 2022 - but remains the richest man in the world:

US stocks more promising than European ones?

“Only half the energy expenditure”

Does this also mean that US stocks are more promising than European ones?

Lück:

I would put it differently: US shares are not quite as unattractive as European ones.

America has half the energy spending of Europe, so it's less affected by the energy crisis because it's more self-sufficient.

This is a great advantage for the companies there.

If one of the two regions scrapes through the recession, it's more likely to be the USA.

And: America has many more so-called quality stocks from corporations that are less affected by crises.

For the past ten years, the big US technology stocks have ruled the world's stock markets.

In 2022 they got pretty badly under the wheels.

Is Netflix, Facebook and Amazon's heyday over?

Lück:

Technical progress will continue to be the defining issue for mankind.

Only the area in which there are major innovations and new lucrative business models could change.

The hype surrounding internet communication and internet platforms is just reaching its limits.

There is a lot of potential for this in trends such as green technologies, medical technology and electromobility.

But here, too, the USA is in a better position.

All the important waves of technology have come from America over the past few decades - if only because there are more start-ups and more venture capital there.

These mega-rich lost a lot of money in 2022

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Germany and the economic crisis: "We must succeed in the green transformation"

In Europe, politicians are desperately fighting a major economic crisis with lots of money.

will this work

Lück:

In any case, it has a harder time than it has in the last three decades, when it only had to control demand.

If there was little demand, money was given; if there was too much demand, things were slowed down.

However, we have now entered a phase where supply shocks dominate.

This is more reminiscent of the 1970s, when the Yom Kippur War in 1973 and the Islamic Revolution in 1979 led to oil crises and economic crises.

Not a nice view.

Lück:

The question is how we use this time.

If we don't want to shower with a guilty conscience for years and only want to heat parts of our homes, we must succeed in the green transformation.

We've known since the 1950s that fossil fuels aren't necessarily sustainable—that we've been unable to move away from them is staggering.

Can we do it now?

Lück:

That's the only chance we have.

But until that happens, the economy and the stock exchanges will keep cracking and crunching.

At the same time, those companies that succeed in the transition or even make it possible will be rewarded.