I get questions dealing with investors from different backgrounds. Some of them are very experienced investors and traders. These investors sometimes have questions especially when the markets are driving them nuts. Let’s take a closer look at the year 2022 so far, and the market outlook for 2023.
So far this year, the markets around the world have certainly affected a lot of people ranging everyone’s emotions from greed to fear.
The old market saying is that when everybody is thinking the same thing, then nobody is thinking at all. For this issue, instead of the usual format, I will answer some ‘difficult’ questions raised by some of my investors in our recent meetings.
The questions may be simple, but the answers are complex. However, I was surprised that nobody asked me about the market outlook for 2023 for gold, since the yellow metal has since morphed into a holy object of worship.
Read: Six Golden Rules In Getting Favorable Returns And Growth, When Investing In Unit Trusts
Year 2022 So Far And The Market Outlook For 2023
Q1. Are you still bullish on China and its market outlook for 2023?
With boots on the ground in Shanghai and Hong Kong, I remain a long-term bull on the Chinese consumer sector. While some foreign investors remain skeptical, there are strong long-term reasons for investors to allocate to China.
Local research and insights matter more than macro news flows for anyone investing in the Chinese markets. The Chinese markets have corrected to a point that valuations mean solid companies are already priced for the worst-case scenario.
Therefore, the potential for good risk-adjusted returns are promising in the coming years.
Q2. I’m very concerned about the shock of inflation putting more pressure on the markets. What is your view on inflation and the market outlook for 2023?
Wasn’t Ukraine or another nuclear war one of our greatest concerns a couple of months ago? From the market perspective, the worst part of the inflation is behind us. From a poorer consumer perspective, inflation or the rising cost of living will continue to be a problem in the coming years.
Read: 6 Ways To Deal With Inflation
Q3. What is your view on the global economy and market outlook for 2023?
I do not care for the official definition of a recession. The current economic cycle is unlike anything we have seen before in that it has absorbed the impact of a pandemic, followed by a war in Ukraine. Economic data has been distorted for months. If you look at the history, central banks are always too late to engage their efforts and therefore, they very often have to go too far in their response.
With the backing of more than 400 PhD economists, the Fed’s Chairman Powell, one of the most powerful people on the planet, keeps aggressively tightening an economy that is already showing a lot of weakness with inflation peaking, so economic risk is surging going into 2023.
Q4. Do you think Powell will want to destroy the US economy in order to save it?
He will back off. If you believe in the destruction theory, pack your bags and head for the hills with canned food and ammo. The last thing Powell wants is to be blamed for a global financial accident before Christmas. Oops… he already blew up Great Britain and he probably has more phone calls from other central bankers.
On this note, The Bank of England is in a mess and it looks like the UK is an emerging market now. Politically, it is out of the frying pan and into the fire for the UK government.
Q5. Can you tell me more about the volatile stock market and its market outlook for 2023?
Please leave your emotions aside. It is foolish to try and guess the short-term conditions that are so volatile and unpredictable. The long-term bull market is still alive and kicking despite the stomach-churning volatility we have experienced so far this year.
The human mind always projects the recent past onto the future thinking that bad times will never end. Prices could go a lot higher and longer than people think in the coming months and years.
What happens after this long-term bull market ends and how will we deal with that later?
At one stage, the sentiment was so bad especially during the Covid-19 crash. Well, the stock market is a forward-looking mechanism. Extreme volatile markets shake out the weak hands and give long-term investors a strategic mindset and a chance to buy at lower valuations to multiply their wealth.
Q6. 2022 has been unusually volatile for US equities. A renowned economist predicted the market outlook for 2023, and a stock market crash is expected in the coming months. Do you agree with him?
No crash or meltdown. The stock market and the economy are very clearly two different things. What if the bear market is not over and I am wrong? As a mere mortal, I have been wrong many times in the past.
Legendary investor Peter Lynch reminds me that in our business, if you are good, you are right six times out of ten. You are never going to be right nine times out of ten. I do not put all my eggs in one basket.
Q7. What is your view on cryptocurrencies and its market outlook for 2023?
Grab a coffee and enjoy the wild ride. Sentiment can change on a dime and it is not a surprise that most institutional investors have concerns around the risk and volatility of the cryptoasset market.
However, it can further be seen empirically that a simple ‘buy-and-hold’ strategy with an allocation as small as 1% of an investor’s portfolio has resulted in an outperformance of more than 10% over the past seven years. I am a long-term bull and patience is a virtue.
Read: Stabilising The Unstable Stablecoins
Q8. You have been a US Dollar bull for a number of years now. What’s the market outlook for 2023 for US Dollar, are you still bullish?
The US Dollar’s strength has been fairly obvious in the last 12 months, so if anyone is shocked by this, it is probably time to go hands off on his or her finances and get professional help. Since May 2021, the US Dollar has risen 19% against the Euro, even reaching parity in recent weeks.
It has appreciated 20% against the Pound Sterling, and is up 28% against the Japanese Yen. The market outlook for 2023 is that I am still bullish, but the US Dollar is overbought at the current levels.
Read: Managing Currency Exposure In Your Portfolio
Q9. Where is the best place to put your money in the world today?
Drumroll please… and sorry to disappoint the doom and gloomers, but the US remains the best place for both safety of capital and future growth prospects.
Q10. Why have you been able to stay calm despite the chaos so far in 2022?
Those who joined the industry a few years ago are now learning that maybe their success or arrogance in the last few years had more to do with a rising tide lifting all ships and exposure to higher beta areas, than it did their investing acumen. Everyone is a rational investor when things are going higher every day.
I have seen multiple cycles and survived much worse than this and yet some ‘experts’ are terrified. Regular meditation gives me a sense of calm, peace and balance in my work and overall life.
Q11. What about the Russia- Ukriaine War?
I do not have anything to add as the war continues to drag on.
Q12. What about oil?
I am not the bear you are looking for. The spike in oil prices we have seen in spring and early summer has faded. Macro worries will continue to keep a ceiling on crude oil but the fundamentals have now set a solid floor.
OPEC has shown that it is willing to do what is needed to keep markets tight. At some point down, the price range will break to the upside given how constrained supplies will be going forward.
Q13. What is your advice for those who turn to cash as a source of diversification?
I have come across people who choose to hold significant amounts of cash. I can feel their pain. The supposedly conservative strategy of putting money in the bank is actually destroying your purchasing power at a rather alarming rate.
There are other investment opportunities which can help to meet their financial objectives. They just might have to look a little harder.
Well there you go with what’s been going on for the year 2022, and what the market outlook for 2023 is in store for us.
Read: Saving vs Investing, Should I Save Or Invest?
About the Author
YH Wong has over two decades of experience in the financial services industry. His clients include high net worth investors and boutique institutions such as family offices and investment partnerships in the region. He is currently a senior partner with Satori Consultancy Ltd, a financial services company regulated by the Mauritian Financial Services Commission. He can be reached at yhwong@satoriconsultancy.com.
