Geopolitics dominate, but a resolution of the Russia-Ukraine conflict, whilst seeming unlikely at this stage, could be an important driver for a further rally in European equities.
Against an uncertain backdrop, we highlight our 10 key risks for investors to consider in 2023, updated from our outlook published in December 2022.
Our 10 key risks
Monetary policies risk – over-tightening in interest rates creates a higher potential risk of policy mistakes for markets and economies.
Fiscal policies risk – given the difficulty of predicting frictional inflation, risk of stronger and longer lasting inflation could fuel a need for more tightening in monetary policies.
Persistence in inflation – given the difficulty of predicting frictional inflation, risk of stronger and longer lasting inflation could fuel a need for more tightening in monetary policies.
Pandemic relapse risk – localised lockdowns could create further disruptions in supply chains and bottlenecks, which could create shortages and further fuel the frictional inflation.
Corporate margin pressure – more persistent and more elevated inflation could lead to more corporate margins pressure for companies lacking pricing power.
Market volatility and Style leadership volatility – shifting expectations in monetary policies could lead to ongoing volatility in markets, and in style leadership between Growth and Value styles.
Lower long-term growth – growing indebtedness is likely to lead to ongoing low long-term growth in our view, with more scarcity in growth opportunities.
Higher taxation – given higher indebtedness, there is a high likelihood of higher tax rates, both for households and for corporates.
Geopolitical risks flare ups – Russia- Ukraine conflict has tragically materialised in 2022 and will be an ongoing risk, in terms of conflict escalation, with the risk of broadening. Other geopolitical hotspots to watch out for are China-Taiwan, North Korea, Iran-Israel, and China-RoW. Some of these geopolitical risks will be military, others will materialise into technological conflicts, such as China-US.
Climate disasters risk – climate change related disasters are likely to continue to take their toll on various regions, with risk of negative impact on societies, but also on corporates in terms of risk to productive capacities and to assets in general. and for corporates.
Innovation on the increase – as an ever more disruptive decade continues to assert itself in 2023 and beyond
With the ongoing focus on investing for a transitioning world towards net-zero, innovation rates are likely to continue to increase, and with it, disruption risk to traditional businesses is likely to continue to rise.
For long term investors, this opens up good areas of opportunities in some of the recipients of investments to achieved net-zero, but it also highlights the need to be vigilant in terms of disruption risk on established business models, and to ensure disruption risk is assessed in a detailed and structured analytical approach.
Equally important is the ability for companies to remain innovative, to both fend off competitive pressures, and to stay ahead of the disruptive trends that could challenge their market positioning. It is important to highlight here, in a market where short-term growth will be scarce (particularly Europe), long-term structural growth will be in demand. There are good opportunities across our three mega-trends of Demographic Changes, Future of Technology and Resource Scarcity. The eight medium-term thematic opportunities that we have identified previously still carry an important source of structural growth in our view. These eight medium-term thematic opportunities are:
Europe better than expected – Q4 global results season wrap
Europe’s results season was better than expected, and to a lesser degree in the US, while emerging markets were mixed, and Japan weak.
All regions posted positive sales growth, but only Europe reported positive growth in earnings (see below). On aggregate company sales beat across all regions, with the exception of emerging markets. Despite this margin pressures are continuing to come through, impacting companies across a wide range of sectors, in every region.
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Regulatory information and risk warnings
This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’), authorised and regulated by the Financial Conduct Authority. It does not constitute investment advice. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.
The information contained in this document has been compiled with considerable care to ensure its accuracy. However, no representation or warranty, express or implied, is made to its accuracy or completeness. Martin Currie has procured any research or analysis contained in this document for its own use. It is provided to you only incidentally and any opinions expressed are subject to change without notice.
This document may not be distributed to third parties. It is confidential and intended only for the recipient. The recipient may not photocopy, transmit or otherwise share this document, or any part of it, with any other person without the express written permission of Martin Currie Investment Management Limited.
This document is intended only for a wholesale, institutional or otherwise professional audience. Martin Currie Investment Management Limited does not intend for this document to be issued to any other audience and it should not be made available to any person who does not meet this criteria.
The document does not form the basis of, nor should it be relied upon in connection with, any subsequent contract or agreement. It does not constitute, and may not be used for the purpose of, an offer or invitation to subscribe for or otherwise acquire shares in any of the products mentioned.
Past performance is not a guide to future returns. The distribution of specific products is restricted in certain jurisdictions, investors should be aware of these restrictions before requesting further specific information.
The views expressed are opinions of the portfolio managers as of the date of this document and are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. These opinions are not intended to be a forecast of future events, research, a guarantee of future results or investment advice.
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The document may not be distributed to third parties. It is confidential and intended only for the recipient. The recipient may not photocopy, transmit or otherwise share this document, or any part of it, with any other person without the express written permission of Martin Currie Investment Management Limited.
Regulatory information and risk warnings
This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’), authorised and regulated by the Financial Conduct Authority. It does not constitute investment advice. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.
The information contained in this document has been compiled with considerable care to ensure its accuracy. However, no representation or warranty, express or implied, is made to its accuracy or completeness. Martin Currie has procured any research or analysis contained in this document for its own use. It is provided to you only incidentally and any opinions expressed are subject to change without notice.
This document may not be distributed to third parties. It is confidential and intended only for the recipient. The recipient may not photocopy, transmit or otherwise share this document, or any part of it, with any other person without the express written permission of Martin Currie Investment Management Limited.
This document is intended only for a wholesale, institutional or otherwise professional audience. Martin Currie Investment Management Limited does not intend for this document to be issued to any other audience and it should not be made available to any person who does not meet this criteria.
The document does not form the basis of, nor should it be relied upon in connection with, any subsequent contract or agreement. It does not constitute, and may not be used for the purpose of, an offer or invitation to subscribe for or otherwise acquire shares in any of the products mentioned.
Past performance is not a guide to future returns. The distribution of specific products is restricted in certain jurisdictions, investors should be aware of these restrictions before requesting further specific information.
The views expressed are opinions of the portfolio managers as of the date of this document and are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. These opinions are not intended to be a forecast of future events, research, a guarantee of future results or investment advice.
For institutional investors in the USA:
The information contained within this presentation is for Institutional Investors only who meet the definition of Accredited Investor as defined in Rule 501 of the United States Securities Act of 1933, as amended (‘The 1933 Act’) and the definition of Qualified Purchasers as defined in section 2 (a) (51) (A) of the United States Investment Company Act of 1940, as amended (‘the 1940 Act’). It is not for intended for use by members of the general public.
The document may not be distributed to third parties. It is confidential and intended only for the recipient. The recipient may not photocopy, transmit or otherwise share this document, or any part of it, with any other person without the express written permission of Martin Currie Investment Management Limited.
Regulatory information and risk warnings
This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’), authorised and regulated by the Financial Conduct Authority. It does not constitute investment advice. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.
The information contained in this document has been compiled with considerable care to ensure its accuracy. However, no representation or warranty, express or implied, is made to its accuracy or completeness. Martin Currie has procured any research or analysis contained in this document for its own use. It is provided to you only incidentally and any opinions expressed are subject to change without notice.
This document may not be distributed to third parties. It is confidential and intended only for the recipient. The recipient may not photocopy, transmit or otherwise share this document, or any part of it, with any other person without the express written permission of Martin Currie Investment Management Limited.
This document is intended only for a wholesale, institutional or otherwise professional audience. Martin Currie Investment Management Limited does not intend for this document to be issued to any other audience and it should not be made available to any person who does not meet this criteria.
The document does not form the basis of, nor should it be relied upon in connection with, any subsequent contract or agreement. It does not constitute, and may not be used for the purpose of, an offer or invitation to subscribe for or otherwise acquire shares in any of the products mentioned.
Past performance is not a guide to future returns. The distribution of specific products is restricted in certain jurisdictions, investors should be aware of these restrictions before requesting further specific information.
The views expressed are opinions of the portfolio managers as of the date of this document and are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. These opinions are not intended to be a forecast of future events, research, a guarantee of future results or investment advice.