Macquarie Asset Management

Outlook 2023: Opportunity in a volatile world

Download the magazine (PDF)

Events over the past 12 months have only heightened our conviction that the underlying dynamics at play in the global economy have changed in profound ways.

Behaviours and outcomes that had guided investors since the 1990s no longer apply.

A new era dawns

We are entering a new macroeconomic regime as growth in the supply side of the global economy downshifts.

Expect a recovery in 2H23

The developed world will likely be in recession in early 2023, but we expect a recovery in the second half of the year.

Energy transition continues

Energy security and cost concerns are on the rise, but this should accelerate the energy transition.


Globally, labour productivity has slowed over time

Source: Macrobond (November 2022).

A new era dawns

Supply isn't everything, but over the medium term it is almost everything

Supply pressures should continue to ease in the near term and inflation is likely to moderate. But from a long-term perspective, growth in the supply side of the global economy has slowed down, which means the next economic cycle will be characterised by higher interest rates, greater underlying inflationary pressure, more stop-start gross domestic product (GDP) growth, and less countercyclical policy support for economies and asset prices.

 


Recessions often follow sharp increases in interest rates

Source: Macrobond (November 2022).

Expect a recovery in 2H23

Recessions are coming, but so are recoveries

With inflation eroding real incomes and interest rates rising sharply, recessions are likely in early 2023. But the US, UK, and European economies should all be recovering in the second half of the year. With China likely to accelerate steadily through the year as policy easing steps up a gear, the global economic landscape should be much improved towards the end of 2023.

 


Renewables will continue to become more cost efficient1

     Source: BloombergNEF (November 2022).

  1. On a levelized cost of electricity (LCOE) basis, where renewables are the average of solar and onshore wind and fossil fuels are the average of coal and gas.

Energy transition continues

A renewables-based electricity system may be both cheaper and more secure than a fossil fuels-based system

The global energy crisis has brought concerns about energy security and cost to the forefront for consumers, businesses and governments alike. A renewables-based energy system is likely to be both more secure and cheaper than a fossil fuels-based system, so recent developments should ultimately accelerate the transition to a low-carbon energy system.

 

Looking for an easy way to understand our views on the markets for 2023?

Read Ben Way's letter to investors.

Download (PDF)

The global economy faces diverse and complex challenges, but we can play a key role in presenting opportunities to our clients that will generate positive impact for everyone.”

Ben Way
Group Head, Macquarie Asset Management

Asset class viewpoints

For 2023, we are most positive on infrastructure, fixed income, and agriculture. All three asset classes offer yield and defensiveness, while infrastructure and agriculture also provide a hedge against high inflation. Global listed equities and real estate face more headwinds in the near term, but there are still thematic opportunities in both asset classes, and cyclical opportunities should emerge in early 2023 as the downturns unfold and then morph into recoveries.

Debt markets

With interest rate expectations peaking out, inflation likely to moderate, and the major developed world economies set to enter recession, 2023 should be a good year for debt markets. High-quality sovereigns are our favoured exposure and duration looks attractive. Some caution is warranted for credit and select emerging markets as recessionary conditions could see risk spreads rise in some areas.

Equity markets

The derating sell-off is mostly behind us, in our view. But earnings could now come under pressure as revenue growth slows in line with the deterioration in global growth in the first half of 2023. But if onshoring continues, as we expect, the beneficiaries will likely be construction and engineering firms, railroads, and consumer discretionary firms. If inflation falls, this would provide an additional boost to consumer-exposed corporates. If it doesn’t, highly levered firms and those in regulated industries could be negatively affected.

Real assets

Infrastructure is a standout. It offers inflation protection, defensiveness, high yield, and exposure to structural growth drivers, all of which should be attractive to investors in 2023. Agriculture, with its inflation hedge characteristics and consistent return delivery, also looks attractive to us. The rise in interest rates globally means the near-term outlook for real estate is more challenging. High-quality buildings with healthy cash flows and premium tenants, and assets in attractive locations where there are demand-supply imbalances, should continue to perform solidly.

On demand –

Outlook 2023 webinar

Our panelists discuss the key themes investors should be prepared for to navigate the markets in 2023.

Register now

Contributors

Ben Way – Group Head, Macquarie Asset Management
Daniel McCormack – Head of Thought Leadership
John Leonard – Global Head of Equities
Brett Lewthwaite – Chief Investment Officer, Global Head of Fixed Income
Graham McDevitt – Global Fixed Income Strategist
Patrick Er – Senior Econometrician
David Roberts – Global Real Estate Strategist
Aizhan Meldebek – Global Infrastructure Strategist

[2589767]

 

This market commentary has been prepared for general informational purposes by the respective authors, who are part of Macquarie Asset Management (MAM),  the asset management business of Macquarie Group (Macquarie), and is not a product of the Macquarie Research Department. This market commentary reflects the views of the respective authors and statements in it may differ from the views of others in MAM or of other Macquarie divisions or groups, including Macquarie Research. This market commentary has not been prepared to comply with requirements designed to promote the independence of investment research and is accordingly not subject to any prohibition on dealing ahead of the dissemination of investment research.

 

Nothing in this market commentary shall be construed as a solicitation to buy or sell any security or other product, or to engage in or refrain from engaging in any transaction. Macquarie conducts a global full-service, integrated investment banking, asset management, and brokerage business. Macquarie may do, and seek to do, business with any of the companies covered in this market commentary.  Macquarie has investment banking and other business relationships with a significant number of companies, which may include companies that are discussed in this commentary, and may have positions in financial instruments or other financial interests in the subject matter of this market commentary. As a result, investors should be aware that Macquarie may have a conflict of interest that could affect the objectivity of this market commentary. In preparing this market commentary, we did not take into account the investment objectives, financial situation or needs of any particular client. You should not make an investment decision on the basis of this market commentary. Before making an investment decision you need to consider, with or without the assistance of an adviser, whether the investment is appropriate in light of your particular investment needs, objectives and financial circumstances.

 

Macquarie salespeople, traders and other professionals may provide oral or written market commentary, analysis, trading strategies or research products to Macquarie’s clients that reflect opinions which are different from or contrary to the opinions expressed in this market commentary. Macquarie’s asset management business (including MAM), principal trading desks and investing businesses may make investment decisions that are inconsistent with the views expressed in this commentary. There are risks involved in investing. The price of securities and other financial products can and does fluctuate, and an individual security or financial product may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international or local financial, market, economic, tax or regulatory conditions, which may adversely affect the value of the investment. This market commentary is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in this market commentary. Opinions, information, and data in this market commentary are as of the date indicated on the cover and subject to change without notice. No member of the Macquarie Group accepts any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this market commentary and/or further communication in relation to this market commentary. Some of the data in this market commentary may be sourced from information and materials published by government or industry bodies or agencies, however this market commentary is neither endorsed or certified by any such bodies or agencies. This market commentary does not constitute legal, tax accounting or investment advice. Recipients should independently evaluate any specific investment in consultation with their legal, tax, accounting, and investment advisors. Past performance is not indicative of future results. 

 

This market commentary may include forward-looking statements, forecasts, estimates, projections, opinions and investment theses, which may be identified by the use of terminology such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may”, “can”, “plan”, “will”, “would”, “should”, “seek”, “project”, “continue”, “target” and similar expressions. No representation is made or will be made that any forward-looking statements will be achieved or will prove to be correct or that any assumptions on which such statements may be based are reasonable. A number of factors could cause actual future results and operations to vary materially and adversely from the forward-looking statements. Qualitative statements regarding political, regulatory, market and economic environments and opportunities are based on the respective authors opinion, belief and judgment.

 

Other than Macquarie Bank Limited ABN 46 008 583 542 (“Macquarie Bank”), any Macquarie Group entity noted in this document is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia). The obligations of these other Macquarie Group entities do not represent deposits or other liabilities of Macquarie Bank. Macquarie Bank does not guarantee or otherwise provide assurance in respect of the obligations of these other Macquarie Group entities. In addition, if this document relates to an investment, (a) the investor is subject to investment risk including possible delays in repayment and loss of income and principal invested and (b) none of Macquarie Bank or any other Macquarie Group entity guarantees any particular rate of return on or the performance of the investment, nor do they guarantee repayment of capital in respect of the investment.