investment outlook for 2023

After a year that saw almost every major listed asset class post negative returns, many are looking for a silver lining in 2023. But while markets regained some ground at the end of 2022, we can’t be confident we’ve seen the worst. 

The International Monetary Fund predicts that one-third of the world economy will be in recession this year, primarily because the main drivers of global growth - the US, Europe and China - are all facing economic headwinds.

Furthermore, it’s unclear how the recent end to China’s zero-tolerance policy on COVID-19 will continue to impact the rest of the world.   

While it’s possible we’ve already seen the worst declines in equity markets, much will depend on how the situation plays out in the US and whether inflation pressures ease sufficiently to allow central banks to step away from aggressive rate hikes and potentially begin easing.

On the bright side, inflation is expected to trend downward as global demand slows. This should allow central banks to eventually change direction and may set the scene for the next economic upswing. 

Meanwhile, the Reserve Bank of Australia recently surprised many by stating its expectation that further increases in interest rates will be needed over the months ahead, after another 25 basis points rise on 7 February 2023, bringing the official cash rate to 3.35 percent. 

The S&P/ASX 200 ended 2022 at 7038.7 points, down 5.5 percent for the year, but off its year low of 6433.37 due to a strong performance from resources and utilities.

The local market was battered by rising interest rates and surging inflation which had a negative impact on information technology stocks, real estate and consumer sectors. The sharp increase in borrowing costs and mortgage repayments undermined household spending as well as investment in riskier assets like technology.

Active Super investments

Active Super saw positive returns for all products in the December quarter and this continued on in the month of January. It was mainly thanks to the share markets, and Australia has led the way. The products with the highest allocation of shares (like High Growth) have given the best return in recent months. Bond yields may have peaked and this asset class has given a small positive return recently. 

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