DWS remains cautiously optimistic in its outlook for 2023, despite acknowledging plenty of risk for the year ahead.
Europe’s 14th largest asset manager, with €833 billion assets under management, expects a more robust recovery from the economy, markets, and asset classes throughout the year.
Björn Jesch, global chief investment officer of DWS, said: “After the year of disaster of 2022, we are cautiously optimistic with a view to the year of 2023. And this despite political and economic vagaries continuing to be extremely high in 2023.”
In 2023, the German firm is forecasting stock markets to provide investors with at least nominally positive yields after a year of primarily two-digit losses.
Capital markets are being driven by the Eurozone economy, which has presented economic data surpassing market expectations by a higher margin than any other region.
DWS is confident that inflation has already peaked as the Eurozone inflation rate fell from 10.1% in November to 9.2% in December.
However, the path of core inflation rose from 5.0% in November to 5.2% in December, demonstrating that the issue of inflation remains persistent.
Equities can be used to alleviate the effects of high inflation because they tend to be liquid even in times of crises, unlike other assets.
As a result, they have lost none of their appeal over a long-term horizon in the view of DWS.
However, the firm warns equities could not perform as well over a short-term horizon because markets are anticipating a recovery too early.
In particular, mobile phone and semiconductor manufacturers are likely to see their earnings decline in 2023, according to DWS.
European equities are expected to perform the best in the short and long-term compared to US, German, and Emerging Markets equities.
European equities remain promising as they continue to be undervalued, whereas the valuation of US equities is still too high.
In particular, European small-to-mid caps are set to be positive because they have recently underperformed blue chips and are expected to benefit from higher expected profit growth.
Marcus Poppe, portfolio manager of global equities at DWS, also expects chemical stocks in Europe to be particularly promising.
He said: “They already had to cope with significantly declining profits and are already rather cheaply valued. If prices of energy and electricity continue to fall, chemical corporations are meant to profit most.”
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