All that can change in a year: At the start of 2022, many believed that the economic crisis of the pandemic was behind us. But then Putin launched a war of aggression against Ukraine and prices really started to rise.
At one point, central banks felt compelled to react. Whether it is the Federal Reserve (Fed) in the United States, the Bank of England in Great Britain or the European Central Bank (ECB) in Europe. After years of low interest rates, the monetary policemen have increased key interest rates everywhere.
Towards the end of 2022, the German Dax stock index worked its way out of the bear market, but is still down 12% from the start of the year (as of December 21).
And after? Looking ahead to 2023, here are eight investing trends that can help distinguish opportunities from warnings.
1. Inflation should remain high
In 2022, inflation stuck to everything. From the gas pump to the grocery store through your securities account, it was felt and you had fewer precious euros left to invest everywhere.
The big question for 2023 is how far inflation can go in the right direction towards the 2% target. Many experts consider this unlikely.
At its last meeting of central banks of the year, on December 15, the ECB revised its inflation expectations upwards for the coming years. It now expects inflation of 6.3% in 2023, 3.4% in 2024 and 2.3% in 2025.
If so, investors will be looking for inflation-protected investments for at least the next two years. These include inflation-protected government bonds, but also real assets such as gold.
2. The bear market could continue
Covid-19 stock market rocket crashed and burned. June 2022 ushered in the second bear market since 2020, prompting investors to secure their investments.
Although stock markets officially exited the bear market in the second half of 2022, they are still down double digits.
Bonds would normally cushion a bear market. But aggressive rate hikes drive down bond yields as well as stock prices. In the third quarter of 2022, for example, the highly quoted 60/40 portfolio suffered greater losses than a 100% equity portfolio.
Investor confidence is unlikely to improve until inflation has eased significantly. For so long, buying low can be risky.
3. Consider alternative investments
The year 2023 could also ensure a place in portfolios for alternative investments.
Due to their low correlation to traditional asset classes such as stocks and bonds, alternative investments can dampen fluctuations caused by inflation and recession and increase returns more than dividend-paying stocks alone.
Once reserved for experienced traders, ordinary investors can easily access alternative investment strategies such as commodities and managed futures through a good selection of exchange-traded funds (ETFs) and mutual funds at low cost.
While expense ratios tend to be higher than those of an average fund, the performance of alternative investments can outweigh the higher costs.
4. Term deposits are back in fashion
So-called time deposits again promise decent interest income. You leave a fixed amount over one or more years to a bank or company that works with your money. At the end of the term, you get your money back with interest.
Anyone who wanted to invest 5,000 euros for 12 months at the beginning of December 2022 received at best 2.76% interest per year, or 138 euros. That doesn’t mean inflation is back, but it’s still a start.
In our term deposit comparison you will always find the current term deposit offers. Interest rates on fixed deposits are very likely to rise again after the ECB’s latest interest rate hike, which takes effect on 21 December. The interest rate on deposits, which is relevant for interest on savings, has increased from 1.5 to 2%.
5. Watch out for layoffs
The social media hashtag of the year could be #layoff. Tens of thousands of employees at tech giants including Meta, Amazon, Lyft and Twitter have been laid off since mid-November.
While big names in tech have seen high-profile layoffs, other industries have suffered losses as well. Real estate startups like Better, Redfin and Opendoor have laid off staff as rising interest rates and house prices erode mortgage applications, completed sales and business profits.
As failing public companies try to repair their balance sheets in anticipation of a possible recession, the end of the coming year could well weigh on the labor market.
While experts predict college graduates won’t run out of job openings, entry-level positions have less of an impact on company profits.
This could impact unemployment numbers, especially in tech-focused fields. Companies looking to cut labor costs can adopt lean staffing protocols and shed a lot of talent to reassure shareholders.
6. Can Crypto recover?
It’s pretty easy to argue that 2023 has to be a better year for cryptocurrency than 2022, because it couldn’t be much worse.
Several stablecoins, including TerraUSD and Tether, slipped from their moorings in 2022, triggering a mid-year crypto crash that wiped out hundreds of billions of dollars. Crypto exchanges, meanwhile, have suffered from growing pains and layoffs (Coinbase) – not to mention the sudden collapse of FTX.
In 2023, look for crypto companies that attract investors with stories of cash reserves rather than trending coins and celebrity endorsements. Additionally, there could be major developments in cryptocurrency regulation, both in Europe and the United States.
The US Federal Reserve launched its 12-week proof-of-concept project for central bank digital currencies (CBDCs) in mid-November. Lawmakers remain eager to advance legislation to regulate cryptocurrencies.
Unfortunately, many blockchain conversations will likely be shaped by the FTX debacle rather than the technology’s long-term untapped potential.
7. New interest in renewable energy
While supply chain issues have hampered the development of clean energy from electric vehicles to solar cells for the past two years, 2023 could be a very good year for renewables.
With battery storage and the adoption of electric vehicles inextricably linked, BDO Global predicts a prosperous year for renewable energy storage systems. Growing competition in the electric vehicle market from newcomers like Rivian, Lucid, Ford and Chevy could put pressure on established companies like Toyota and Tesla.
8. Hybrid robo-advisors might have had their day
Hybrid robo-advisors — those that offer algorithm-based investments and access to traditional advisers — could see a lot of interest in 2023.
As consumers demand more value for their money in times of inflation, the cost-effective, expert advice behind hybrid robo-advisors captures the zeitgeist. They offer a combination of services such as automated rebalancing and tax loss collection with access to financial advisors, and at generally lower fees than a traditional advisor.
In a price-sensitive economy, investors are more value-driven than ever, so hybrid bots offer the best of both worlds for investors who seek advice but fear the costs.