Investors ended 2022 with a broadly neutral sentiment towards markets, but global uncertainty could undermine their confidence, research showed.
A “hard landing” is currently anticipated across Europe, according to research firm’s Qontigo’s ROOF analysis of investor mood. At the same time, the US is expected to see a short-lived recession in the first half of the year, followed by a strong recovery.
But Qontigo noted this prediction is based on the idea that inflation will have peaked, with central banks becoming more accommodative in the second half of 2023.
In addition, the firm forecast that financial markets will be able to avoid the contagion from a threatening credit default crisis in high-yield bonds and cryptocurrencies. As such, this means strategies for 2023 will broadly follow the template set in the second half of 2022.
Risk-averse strategies outperformed risk-tolerant ones in 2022, according to the firm, and current sentiment scores suggest investors are beginning the year in a risk-neutral frame of mind.
“A neutral sentiment means a lower potential for misplaced emotional response to risk-events in the near term,” Qontigo said.
Traditional end-of-year enthusiasm was dulled by worries about the global macroeconomic backdrop. As such, investors are benefitting from a “healthy yield for sitting on the sideline” by turning to defensive assets – an area of outperformance for the past two years.
“Markets may not get the same bargain-hunting support they are used to,” Qontigo’s report added. These headwinds have already begun to impact portfolio construction decisions.
Cash and uncorrelated assets will form a key component of multi-asset portfolios until volatility subsides, Fidelity International’s global head of solutions and multi-asset Henk-Jan Rikkerink said in November, with defensive positioning set to be a core theme of early-year investing.
He said less correlated exposures will be vital over the coming year, with investors seeking “wider sources of diversification and risk, where investors will be forced to look beyond traditional assets to deliver outcomes over the long term.”
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