Market Outlook

Well, 2022 was a bit of a stinker. The chart/table below does not pull any punches with the only ‘winners’ the FTSE UK All Share and the UK CPI. Most other major indices had a very difficult year and the benefits of diversification fled for the hills as there was no where to hide because both defensive and growth assets all suffered.

However, let’s look ahead to 2023. Again no predictions, but it is worth touching on a few themes that will continue to unfold over the months ahead.

Fund managers have had the opportunity now to reflect on the new investment climate and are in the process of rebuilding their portfolios. It will remain a challenging environment for the great and good of the investment world, with the spectre of recession in the UK and on the global stage looming large. It is expected that interest rates will increase again this year and whilst it appears inflation is at the top end of its cycle it is not yet under control.

With this said, it is widely accepted that much of the bad news is factored into current valuations and the recession may be shallower than expected, but perhaps more prolonged than originally envisaged.

Some areas to watch.

The bond market is displaying some interesting data. The traditional home for lower risk areas of a portfolio, fixed interest had a shocking 2022 with double digit losses in many cases – this dragged down cautious portfolios. However, we are seeing fund managers looking at the low capital values with attractive relative yields as a buying opportunity. They are treading carefully as interest rates and inflation continue to work against this asset class, but when the yield on a 10 year government was approximately 1% a year ago but is now approximately 3.5%, you can see why there may be some lifeblood coming back into this market.

Likewise ‘tech stocks’ had a miserable 2022, which had a significant impact on the US markets. These stocks suffered badly from the savage rotation from growth assets to value stocks. Their future fortunes hinge on the outlook for interest rates and inflation. With this said, technology companies and technology funds are here to stay. After their precipitous fall there will be some fund managers looking at ‘bargains’ and adding to the portfolios, although they may struggle to make real headway this year, but a rebuild is underway.

China is another interesting story line. The world’s second largest economy continues to divide sentiment. What has stifled growth is government market interference, a strict line on COVID and debt in the property markets that has put it out of favour with many investors. Like tech stocks it is also considered cheap, with a lot of bad news priced in. There may be better times ahead with travel restrictions and COVID policies easing but a turnaround in fortunes remains someway off ; however, when the climate does improve here and we witness and uptick it will have a direct impact on the commodity sector.

On the surface the UK market fared well last year but this was due to the FTSE 100 being shewed towards energy companies, which had a bumper year. The UK economy is better reflected in the FTSE 250, which painted an altogether different picture, down some 17%. Some UK fund managers are talking up smaller and medium sized companies, which are dependent on continued consumer spending. Unemployment remains low and spending continues, which is good, but with the cost of living crisis remaining a stubborn feature and a squeeze on real earnings means recovery in this area may take some time.

So, no predictions as promised. We will continue to manage and monitor your portfolios in the same way that we have always done by maintaining asset allocations that reflect your risk profiles and keeping downward pressure on underlying portfolios fees.

May I and the team at IronBright wish you all the very best for the year ahead whatever your plans are.

This market outlook was brought to you by Steve Brady

Steve is an investment director and financial planner at Brunel Capital Partners, heading up our investment arm — IronBright Investment Management.

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