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With the first half of 2023 in the books, investment tipsters have released their expectations for the remaining six months. Here are some opportunities they see for the rest of the year:
KKR’s Henry McVey (KKR) said he expects short-term strategies to underperform in a complex context of asynchronous global economic recovery. “It is still a good time to look for attractive investment opportunities in credit, equities and real assets, despite difficult macroeconomic conditions which may create a series of continuous recoveries and slight contractions in different sectors and economies. “
He urges investors to “stay the course”, particularly on the major secular trends such as energy transition, the security of everything and digitalization.
Jim Cielinski, global head of fixed income at Janus Henderson Investors (JHG), said: “Historically, one of the best times to own fixed income was when policymakers were making their last rate hike. in an up cycle, which could bode well for rates – sensitive areas such as government bonds and investment grade companies in the second half of 2023.”
Quality matters: For fixed income investments, he focused on credit quality. “Valuations of financial stocks and commercial mortgage-backed securities have widened during the recent bank run,” he said. “This price drop has opened up some opportunities, but it’s also a reminder that sentiment towards credit markets can change quickly. To stay on track, it will be more important than ever to get a good understanding of a borrower’s fundamentals.”
As for equities, Matt Peron of Janus Henderson Investors, director of research/portfolio manager, advised investors to favor quality companies. “We continue to expect unusually tight monetary policy to restrain economic activity and with it the ability of companies to increase profits,” he said.
“A rapid succession of earnings dips and multiple dips also presents an opportunity for long-term investors,” Peron said. He suggested keeping a defensive stance by turning to quality stocks, “as their healthy balance sheets and stable cash flows should shield them from unexpected downside risks.” With that in mind, he sees many of the biggest tech and internet stocks meeting these criteria, while exposure to highly cyclical sectors and over-leveraged companies should be minimized.
JP Morgan’s global strategists suggested that investors should seek to increase the resilience of their equity portfolios and focus on “high quality names, strong dividend payers and regional diversification”.
“We also believe that adding exposure to alternative asset classes, such as infrastructure, could make portfolios more defensively positioned, while providing some inflation protection and attractive income.”
Finally, keep an eye on scarcity to take advantage of opportunities created by observed supply shortages in energy, materials, food and labor, they said.
Justin Thomson, head of international equities and CIO of T. Rowe Price (TROW), sees opportunities in certain sectors, including small-cap stocks and high-yield bonds. “Lower valuations and a weaker U.S. dollar could also make global non-U.S. equity markets attractive,” he said. And Arif Husain, head of international fixed income and CIO at TROW, said positive yield curves could do the same for global bond markets outside the United States.
Macro view: Regarding the macroeconomic outlook for the remainder of 2023, JP Morgan still considers a recession to still be “more likely than not” as strategists do not expect central banks to preemptively cut rates.
KKR’s McVey predicts US GDP growth of 1.8% in 2023, beating the consensus of 1.1%. Its consensus for inflation in 2023 is below consensus, while its expectations for inflation in 2024 are higher across all regions.
EPS will fall more than consensus as “profit margins begin to contract more significantly despite positive top line growth,” McVey said. In addition, the labor shortage in the United States will continue. Long-term prices for U.S. oil producers will approach $80 a barrel from the pre-pandemic range of $50-$60.
In his mid-year outlook, T. Rowe Price said that “the balance of economic forces still appears to be tilted against global capital markets. Sticky inflation, central bank tightening and financial instability pose all obvious risks”.
