Monthly comment December 2022

Index

• Markets
• Economy
• Geopolitics
• Conclusions
• Allocation
• Market data
• Event calendar

First of all, we want to wish you a Happy New Year in the hope that 2023 will bring us a lot of positivity, not only in the financial markets but also socially and geopolitically.

Markets

The year that has just ended was a very peculiar and difficult year in all senses, the financial markets had negative performances on all sectors both equities and bonds; the main U.S. stock indices close the year with performances that are, S&P 500 of -19.4% Dow Jones -8.7% and Nasdaq -33.1%, thus making it the worst year since the end of the great financial crisis of 2008.

European stock exchanges end the year with performances ranging from -11.7% Eurostoxx 50 to minus 16.6% Swiss SMI.

One very peculiar thing about the past year was the negative performance of bond markets, which experienced their worst year in more than 30 years. The sharp rise in rates due to the explosion of inflation and aggressive policies of central banks led to sharp declines in global bond prices leading U.S. bonds to lose between 13 and 16%, while European bonds on average lost between 15 and 18%. 
The simultaneous declines in stock and bond prices wiped out any possibility of a portfolio risk diversification strategy in order to contain the negativity in the markets, and we also had times where defensive portfolios that are characterized by a low percentage of equities and a high percentage of bonds, had significantly more negative performance than portfolios with a predominantly equity allocation.

Economy

From a macroeconomic perspective, global growth declined sharply in 2022 and remains on a slowing trajectory for 2023. The slowdown has been more in Europe due to the energy crisis and in China where real estate problems and policy and zero covid restrictions have strained the economy. World trade has declined as the booming global goods sectors have deflated while demand for services remains buoyant. Currently, global GDP growth expectations for 2023 are for a growth of 2.1 %, but if we go to analyze the expectations for the major countries, we see that for the United States a timid increase of 0.3 % is expected while for the euro area growth is expected to be around zero with some countries such as Germany seeing the growth figure at -0.6 %, thus in recession. On the inflation front, expectations are for a significant decline during 2023, on average in the G8 countries inflation is expected to be around 4.5 % with the United States expected to record a figure around 4 %, Germany 6.5 % and England 7.2 %. Central bank policies will remain restrictive, but we believe that the most has been done and we will reach the pivot in the first half of 2023 by both the Federal Reserve and the ECB.

Geopolitics

The situation between Russia and Ukraine in recent times has seen a worrying escalation with increasing clashes and the use of increasingly devastating weaponry, and according to some experts Russia is positioning itself in recent weeks to then launch a major offensive in February. The situation is thus worsening, and the timid hopes of a peace agreement some time ago have at this time vanished. Meanwhile, other tense situations have arisen in the Middle East within Israel and Iran. The global picture remains very complicated and indicators world political tension is always at high levels.

Conclusions

Expectations for the first quarter of 2023 in equity markets, at the moment, are for a settling phase, although we expect an increase in volatility, moreover, we believe that for the 2023 strategy it will be important, more than the choice of countries, that of sectors and companies to invest in.

The bond sector, which has suffered significant declines, looks very attractive with yields we have not seen in years as a result of the central banks' expansionary policies, in this sector we see good opportunities for this year especially in the debt sector of companies with good rating standing. However, the bond world will be heavily influenced by central bank policies and inflation data in the coming months.

Considering the turmoil in the various asset classes in recent months, the idea of a portfolio based on a "Strategic Asset Allocation," i.e., a default allocation between stocks and bonds, may seem to some to be inappropriate. It is tempting to resort to short-term interventions by trying to take advantage of market trends or economic conditions by actively changing portfolio allocations. But, as history teaches us, doing so may make investors worse off. We therefore believe that a "Strategic Asset Allocation" is always a viable solution from a medium- to long-term perspective.

Allocation

Liquidity

Bonds

Equity

Precious metals & Commodities

Geo-tactical allocation

Switzerland

Western Europe ex Switzerland

North America

Latin America

Asia Pacific

Top sector

1. Energy
2. Consumer Discretionary
3. Materials

Market data

Event calendar

Legend