Macquarie Asset Management has published its Outlook 2023, providing perspectives on the themes set to influence the investment landscape and performance of key asset classes for the year ahead. In Outlook 2023, Macquarie Asset Management outlines its expectations that as supply chain pressures ease and aggregate demand weaken, inflation is likely to moderate during 2023 but also remain above central bank targets of nearly 2%.
Macquarie Asset Management’s view is that the US will enter recessionary conditions in 1H23 following the UK and Europe; however, these recessions are likely to be over by mid-2023 and the developed world could see a synchronised recovery towards the end of the year.
Energy security will continue to be a dominant theme for the year ahead. Macquarie Asset Management anticipates that although Europe may have enough resources to see it through this winter through increased liquified natural gas imports and reliance on other fuel sources, the biggest challenge will occur in the coming year. The asset manager also believes that the latest stresses in energy markets could accelerate the transition to a low carbon energy system.
Ben Way, Group Head of Macquarie Asset Management, says, “By many measures, 2022 was difficult: global inflation, the end of easy monetary policy, supply chain disruptions and an unprovoked war that, among other things, drove Europe to prioritise energy supply over energy transition. These events set global markets on a downward path – and the challenges they presented persist as we enter 2023.
Based on our experience and the views of our experts, we remain stubbornly optimistic. 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. When volatility and uncertainty abound and where the cost of capital is not zero, it is especially important to be an active investor.”
Global Equity Markets
Macquarie Asset Management remains cautious towards equities due to earnings risks and anticipates a decline in equity markets as the developed world endures recessionary conditions. The asset manager sees opportunities in playing key thematics, such as deglobalisation and onshoring, with construction and engineering firms, railroads, and consumer discretionary firms becoming the major beneficiaries.
Global Debt Markets
Bond yields rose considerably in 2022, offering attractive valuations and strong protection levels for investors in investment grade, high yield markets, and developed world sovereigns. However, in Macquarie Asset Management’s view, a defensive position is warranted given the potential for recessions and inflation to undermine the strong start to 2023.
In real assets, infrastructure grew in popularity among institutional investors in 2022 due to the defensive and inflation-linked nature of its cash flows. In what is expected to be a challenging and volatile macroeconomic environment in 2023, investors are likely to continue to be attracted to equity investments that are defensive, have high yields, and offer inflation protection. Infrastructure has all these traits in spades.