2022 has been a tough year for many FTSE 100 stocks. The outlook for next year remains fraught with danger as central banks hike interest rates and the war in Ukraine continues.
However, financial consultancy deVere Group’s chief executive Nigel Green, for one, has painted an encouraging picture for the next 12 months. He’s outlined “some key market, macro and policy shifts that will provide a significantly more positive outlook for investors in 2023.”
Green has identified four tailwinds he says will “excite” global financial markets next year.
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1. Peaking inflation
Once inflation begins to slip from its highs, consumers will have more money to spend, and central banks will slow interest rate hikes before ceasing them altogether.
Green notes that “we saw how positively — and how quickly — markets reacted to the better-than-expected US inflation print” in mid-November.
Inflation in the States fell to 7.7% in October, the fourth successive monthly drop. It prompted share prices to soar across the FTSE 100, the FTSE 250 and on Wall Street.
2. Low valuations
Extreme market volatility in 2022 has lowered the valuations of many quality shares. This in turn provides a great dip-buying opportunity.
Green says that current low prices “create better long-term investment opportunities and generate higher income for investors.”
He adds that “in many cases [investors] will be currently viewing this backdrop as a buying opportunity to top up their portfolios.”
3. Increased digitalisation
Companies are also continuing to rapidly digitalise their operations to turbocharge their profits.
Green notes that investments in technology “help increase efficiency, increase productivity, lower operational costs, improve customer experience, improve competitive advantage, and improve speed and outcomes of decision-making.”
4. Dollar to decline
Finally, Green reckons that the US dollar will begin retracing from mid-2023, giving a boost to financial markets.
Worries over a global recession have boosted demand for the safe-haven dollar in 2022. This in turn has raised inflation, boosted import costs, and forced central banks to further tighten monetary policy.
A sunnier outlook for the world economy should lessen investor demand for the flight-to-safety currency.
Here’s what I’m doing now
There are clearly seeds of encouragement for UK share investors. But as I said at the top, the outlook is still plagued with risks.
Green notes that “inflation will still be an issue for a while to come.” So he suggests that “stocks that are likely to be recession-resistant” like food, energy and financial services providers could do well.
That said, the head of deVere still reckons that “investors will be seeking to increase exposure to growth stocks” towards the end of next year as the “cost of living eases and global growth picks up pace.”
I myself have already started buying stocks for the economic recovery. Share prices might rocket next year. They might not.
But over the long term I expect the FTSE 100 to rise strongly from current levels. So I plan to keep adding to my portfolio now and over the next year.
