What lies ahead for investments in 2023?
What lies ahead for investments in 2023?
I spent most of the holiday thinking about the re-opening of the Chinese economy and the impact it will have on global investments this year. I’ve written about it several times over the past couple of months and it seems to be happening in line with expectations.
Perhaps even faster than first thought.
As China opens, the global trade balance will shift and the demand for commodities will start to take shape. All of this is happening in a world where inflation looks to be finally under some sort of control. December’s US inflation numbers are the first sign that the inflation dragon is being tamed successfully.
Do I think that central banks have finished raising rates? Not yet, but we’re almost there. I think the US Fed is probably the furthest in its inflation crusade. Europe, England, Canada and Australia are lagging behind. I think we’ll see one more round of interest rate rises and then a pause, which may last three to six months, before talk of cuts towards the end of this year.
So this year is all about the rebalancing effect. If you haven’t already, I encourage you to read my note titled Building the 2023 investment plan published last year.
Some of my other 2023 convictions are also starting to materialise earlier than expected. Gold for example has started to move nicely up, although most of this is due to the US dollar coming back. The Japanese Yen is also up strongly since I wrote about it back in November.
I think global stock markets have found some level of support, and their direction will continue to be driven by interest rates. I was called out by colleagues for being too optimistic last year on US stocks, but I maintain my conviction on looking forward, not back.
Remember, stocks are always forward-looking, so it’s about what happens in 2024 that matters, not the rearview.
Despite this, for me, the big focus is on China and the pace of the Chinese recovery. I’ve spent the holiday reading former Prime Minister Kevin Rudd’s book titled The Avoidable War. It’s a great read because it puts China’s economy and any recovery in very good context.
Rudd argues that China’s ambitions under President Xi are still for the economy to grow by two to three times its current size, if its per capita income ambitions are to be achieved. It’s a 20-50 year plan and 2023 is an important year in getting that plan back on track.
It’s also worth noting that Rudd was recently announced as Australia’s Ambassador to the United States. Perhaps there is a change in Washington towards China, particularly with a Presidential election around the corner and domestic growth under threat of rising rates. I’ll be watching this closely.
China’s trajectory will have a profound impact on Australia, Brasil and Canada as key energy exporters but also for Europe which is looking to pacify the impact of a year-long war on its Eastern front. Capital allocation to emerging markets will start to take shape.
So that’s where my thoughts and focus are for the year ahead. I’ll break each investment theme and opportunity down week by week, including real estate insights and flashnotes on economic news as it breaks, to see if our narrative is set for change.
If you haven’t already, I encourage you to subscribe and join the thousands of readers each week who get these insights delivered straight to their inbox.