With the cost of living crisis and the UK’s economic growth slowing, we look at the investment trends that are set to shape 2023.
With many of the problems of 2022 set to carry on into 2023, it will continue to be a difficult environment for investors.
That’s the forecast of Emma Wall, head of investment analysis and research at financial services company Hargreaves Lansdown.
“Sadly, the picture is not looking rosy for investors in 2023,” she says. “With global economic growth expected to slow considerably — and many major nations predicted to fall into recession — this will be the dominant theme for the year ahead.”
Inflation will continue to dominate banking policy, with higher interest rates expected for at least the first half of 2023, says Wall. The losses experienced in both the fixed income and equity markets in the last year should be also expected in the next 12 months to come.
Meanwhile, China’s zero Covid policy will continue to hit global growth. “The cost of living crisis will mean tough decisions on spending for both consumers and corporates,”says Wall. “Expect companies in retail, entertainment, leisure and travel to be disproportionally hit, which means further bad news for businesses after the impact of numerous lockdowns.”
In such an environment, David Henry, investment manager at Quilter Cheviot, suggests investing in businesses that sell things people or companies desperately need. This could include health & wellness products, which tend to increase in demand when a new year approaches, or technology with a strong focus on sustainability.
He also warns against walking away from government and corporate bonds, especially when yields are much higher than they’ve been for the best part of a decade. If investors can hold on, they could generate some impressive income, he says.
Data since the beginning of 1970s has shown that bonds tend to outperform stocks, particularly in the early parts of a recession, says Henry. Therefore, as many major economies head into recession, corporate bonds can still have a role to play in many portfolios.
Read more: Everything you need to know about how your direct debits will be affected by the cost of living crisis
Taking advantage of the uncertain market could lead to more benefits in the long run
The energy sector has continued to attract the attention of investors, as it’s been one of the best performers in 2022. However, Harvey warns against taking a bullish stance on the sector, as oil commodities typically don’t do well during times of economic slowdown and investors need these businesses to be more serious about capital discipline.
Meanwhile, mid-cap stocks in the FTSE 250 could become acquisition targets, with their valuations lingering below global stocks while the performance of sterling is relative to several other currencies, which creates a potential opportunity. For overseas buyers, the UK mid-cap market could present an opportunity to pick up fabulous businesses at attractive discounts.
For those new to investing, the current market backdrop can be daunting. However, in Henry’s opinion, investors should embrace the uncertainty.
Investment apps such as eToro, Freetrade, Moneyfarm, Wealthify, Clim8 and Circa500 are useful, depending on whether investors want to run things themselves, benefit from portfolio management services or are looking for more climate-friendly investments.
Keep in mind that investments can go down as well as up and you might not get back the original amount you invested.