Some of the world's biggest investors predict that stocks will see low double-digit gains next year, which would bring relief after global equities suffered their worst loss since 2008.
Amid recent optimism that inflation has peaked — and that the Federal Reserve could soon start to change its tone— 71% of respondents in a Bloomberg News survey expect equities to rise, versus 19% forecasting declines. For those seeing gains, the average response was a 10% return.
The informal survey of 134 fund managers incorporates the views of major investors including BlackRock Inc., Goldman Sachs Asset Management and Amundi SA. It provides an insight into the big themes and hurdles they expect to be grappling with in 2023 after inflation, the war in Ukraine and hawkish central banks battered equity returns this year.
The stock market could be derailed again by stubbornly high inflation or a deep recession, however. Those are the top worries for the upcoming year, cited by 48% and 45% of participants, respectively. Stocks could also reach new lows early in 2023, with many seeing gains skewed to the second half.
"Even though we might face a recession and falling profits, we have already discounted part of it in 2022," said Pia Haak, chief investment officer at Swedbank Robur, Sweden's biggest fund manager. "We will have better visibility coming into 2023 and this will hopefully help markets."
Even after a recent rally, the MSCI All-Country World Index is on track for its worst year since the global financial crisis in 2008. The S&P 500 will probably end 2022 with a similarly poor performance.
The energy crisis in Europe and signs of slower economic growth have kept a lid on stock prices even as China begins to ease some of its tough Covid curbs. Plus, there are growing fears that the slowdown already underway in many economies will eventually take a bite out of earnings.
The Bloomberg survey was conducted by reporters who reached out to fund managers and strategists at major investment firms between Nov. 29 and Dec. 7. Last year, a similar survey predicted that aggressive policy tightening by central banks would be the biggest threat to stocks in 2022.
Tech Comeback
Hideyuki Ishiguro, senior strategist at Nomura Asset Management, expects 2023 to be the "exact opposite of this year." Part of that is due to valuations, which have slumped to leave the MSCI ACWI trading near its long-term average forward 12-month price-to-earnings ratio.
When it comes to specific sectors, respondents generally favored companies that can defend earnings through an economic downturn. Dividend payers and insurance, health care and low volatility stocks were among their picks, while some preferred banks and emerging markets including India, Indonesia and Vietnam.
After being hammered this year as interest rates climbed, U.S. technology stocks may also come back in favor, according to the survey. More than half of respondents said they'd selectively buy the sector.
With valuations still relatively cheap despite the recent rally and bond yields expected to fall next year, tech behemoths including Apple Inc., Amazon.com Inc. and Google parent Alphabet Inc. are expected to benefit, fund managers said.
Some are bullish on China, particularly as it moves away from Covid zero. A slump earlier this year has put valuations well below their 20-year average, making them more attractive compared with US or European peers.
