FRANKFURT/PARIS/LONDON (dpa-AFX) - After two Corona years of extremes, many investors were hoping for one thing above all at the beginning of 2022: a calmer pace on the stock markets. But as we all know, things turned out differently. With the Ukraine war and the energy price crisis, all hopes of a normalization were gone. Meanwhile, none of the problems that dominated the headlines in 2022 has been solved. With the central banks likely to remain on a strict course for some time to come, the situation has even worsened again recently. The outlook for 2023 is mixed, and only one thing is certain: uncertainty.
This is expressed in the banks' outlooks. "The themes for 2023 seem set: Inflation, recession and consequences of the Ukraine war," state the experts at Landesbank Baden-Württemberg (LBBW) in their capital market compass. The market recovery in the fourth quarter does not diminish the skepticism. The stabilization since October will soon run out of steam, warns LBBW equity market strategist Frank Klumpp.
The "surprisingly positive" reporting season of the Dax companies has had only a delaying effect for the expert. Because analysts have long since taken their expectations back. "In the Dax and Stoxx Europe 600, respectively, earnings estimates have been falling since October." Thus, European companies are following a trend that already began in the U.S. in mid-June. Therefore, European shares did not appear particularly favorable, Klumpp further explains.
The economic outlook also argues for falling profits. "We expect global growth to slow to 1.7 percent in 2023, with most developed countries stagnating and Europe even facing a recession," points out Luca Paolini, chief strategist at Pictet Asset Management.
Markets should not expect support from central banks either. The U.S. monetary watchdogs have eased off the gas a bit, but less speed does not yet mean a change of direction. This was impressively demonstrated by the central bank meeting in mid-December. Investors hoping for signals of a less stringent monetary policy saw themselves deceived. "In our view, the Fed is likely to remain intent on reining in interest rate turnaround speculation for the time being," emphasizes bond specialist Elmar Völker of LBBW. Thomas Gitzel, Chief Economist at VP Bank, points out in this context that the Fed's interest rate expectations for 2023 recently rose to 5.1 percent.
And the European Central Bank even delivered a tangible surprise with its latest meeting. "The inflation outlook was revised significantly upward, interest rates must rise significantly and steadily," bond experts at fund company M&G summarized the results of the meeting. And even worse: ECB chief Christine Lagarde had admitted that the highest interest rate level of three percent assumed by the market so far was too low.
This is all the more true if core inflation, excluding volatile energy prices, remains high, as market strategists Edward Stanford and analyst Amit Shrivastava of British bank HSBC point out. With a tight monetary policy, however, the risk of a sharp recession is growing, with corresponding negative effects for equities.
For LBBW, the risks mentioned are reason enough to stick to a defensive positioning for the time being. According to expert Klumpp, this is also supported by the fact that there has not yet been a sell-off on the stock markets. "Only then will the market be cleared and the way for a sustained upward trend reversal will be clear again," says Klumpp. Therefore, the first half of 2023 is likely to be weak again before the situation takes a turn for the better.
Despite all the prophecies of doom, however, 2023 could also bring positive surprises. "The consensus forecasts for the European economy are very subdued - but the outlook for Europe's companies and the European equity market is more positive in our view," Mark Nichols and Mark Heslop, European investment managers at fund company Jupiter Asset Management, point out. They therefore do not believe that the high valuation discount for European equities compared with U.S. stocks is justified. After all, local companies do a large part of their business outside Europe.
Robert Halver, head of capital market analysis at Baader Bank, also believes it would be wrong to extrapolate the problems of 2022 into the future. On the contrary: "What has caused headwinds so far will provide tailwinds in 2023," Halver believes. For example, the disrupted supply chains are likely to become increasingly stable. This would also have consequences for prices. Halver expects inflationary pressure to decrease, "because from spring on, the base effect of rising raw material prices as well as supply bottlenecks compared to the previous year will increasingly weaken."
And that's not all. "At the end of 2023, a downward turn in interest rates is even conceivable," Halver predicts. That's because the Federal Reserve is unlikely to overshoot and risk a hard landing for the U.S. economy. This is all the more true since the economic downturn and the interest rate hikes to date are likely to cause inflation to fall.
The European Central Bank's recent harsh rhetoric is not set in stone, according to the market expert. "The easing of inflation also in the euro zone, which has set in with a time lag to America, is likely to take some of the heat off verbally overzealous rate hike ambitions in practice." And besides, flexibility is the order of the day on both sides of the Atlantic, he said. "As with the Fed, the ECB is keeping a door open by saying that monetary policy decisions depend on data," Halver stresses.
Halver also advises taking a look at corporate payouts. The corporations represented in the Dax are aiming for a "dividend record" of around 54 billion euros in 2023 - at least a consolation in view of the still high inflation, especially if share prices do not rise.
The experts at Landesbank Baden-Württemberg also see glimmers of hope. For all their skepticism, they are only cautious for the first half of the coming year. In their main scenario, they believe that the Dax will grow to 15,500 points by the end of 2023 and the Euro Stoxx 50 to 4050 points - provided that the Ukraine crisis does not escalate and inflation does not get out of hand.
This would mean a gain of around ten percent for the Dax, based on prices in the week before Christmas. However, experts initially expect prices to slide to 13,000 points.
For the EuroStoxx, this would result in an annual gain of around four percent, although the trend is likely to be similarly bumpy as for the Dax. LBBW's strategists are thus even somewhat more optimistic than other banks. According to data from the Bloomberg news agency, market strategists from various banks expect the leading euro zone index to reach an average of 3960 points at the end of 2023, only slightly above the current level./mf/mis/ag/jha/
--- by Michael Fuchs, dpa-AFX
