2022 has been a tough year on global stock markets. And macroeconomic conditions remain challenging heading into the New Year.
However, there are many compelling reasons to believe that share prices could recover spectacularly in 2023. Nigel Green, chief executive of financial advisory firm deVere Group, thinks financial markets could rebound due to the following factors.
#1: Reopening in China
Green says that the end of Covid-19 restrictions in China could be the main boost for financial markets next year. The Beijing authorities have been loosening lockdown rules in recent months in response to rising social unrest.
He predicts that reopening of China’s economy “could be the most visible, most anticipated, and most impactful upside boost for global markets we’ve seen in recent times.”
#2: Inflation to peak
Meanwhile inflationary pressures will begin to moderate next year, the head of deVere predicts.
He says that this will ease the cost-of-living crisis for consumers and prompt changes in central bank policy. Ratesetters will gradually slow down interest rate hikes before winding down their actions altogether, Green adds.
He suggests that news of easing inflation could prompt sudden share price rallies too. He notes that “we have seen recently how positively — and how quickly — markets reacted to the better-than-expected US inflation data.”
Share prices soared a fortnight ago on news that US CPI inflation dropped to 7.1% on an annual basis in November.
#3: A reversing US dollar
Green thinks the world’s safe-haven currency will decline in 2023 after peaking around the middle of the year. This will help to temper recent inflationary pressures still further.
He notes that dollar strength this year “has hit both developed and emerging markets globally, fuelling inflation and raising the cost of imported goods.” The robust currency has encouraged central banks outside of the States to tighten their monetary policies too.
“This will all ease when the dollar’s supremacy weakens,” the deVere founder says.
#4: The rotation
Finally, financial markets will be influenced by a rotation into growth stocks as economic conditions change, he predicts.
Demand for shares like these — which grow at a faster pace than the market average — will rise “as cost-of-living eases and global growth picks up pace throughout 2023,” we’re told.
Tech-focused growth stocks like Meta, Amazon and Tesla have slumped in value this year as macroeconomic worries have grown.
Here’s what I’m doing in 2023
There are clearly grounds for investors to be optimistic for next year. But trying to guess how stock markets will behave in the near term can be a fool’s errand. And especially so in today’s turbulent macroeconomic and geopolitical landscape.
Yet I plan to continue buying UK stocks over the next 12 months. As a patient investor I believe spending time in the market is far more critical to creating wealth than timing any market upturn.
There are also still many brilliant bargains available for me to buy following 2022’s stock market volatility.
So I won’t be disappointed if a new bull market doesn’t begin in the New Year. I’m confident that the shares I buy will still appreciate strongly in value over the long term.
