Page 6 - DIY Investor Magazine | Issue 37

Apr 2023 6 DIY Investor Magazine · GREEN SHOOTS FOR GLOBAL MARKETS IN 2023? • There are many risks for the global economy in 2023, but there are also encouraging signs • Asia is benefitting from the reopening of China and improving investor confidence • Reliable cash flow and dividends are likely to be highly valued by investors this year Last year saw a significant adjustment in financial markets, as inflationary pressures ushered in a new era of rising interest rates. Markets also had to contend with sliding economic growth and a squeeze on household and corporate spending. So far in 2023, the outlook still warrants caution, but there are green shoots emerging. These green shoots are perhaps most evident in Asia. China is reopening as it moves away from its zero-Covid policy. This creates economic momentum across the region, as activity resumes. At the same time, Asia’s post-pandemic debt hangover is not likely to be as severe, with governments remaining more circumspect about spending than their Western peers and inflationary pressures lower. This means the path to recovery appears clearer. in return for its services, so long as the infrastructure is available for use – hence ‘availability-style’. BBGI’s co-CEOs Duncan Ball and Frank Schramm invest in government-backed availability- style assets around the world, all with contractual long-term income streams with genuine links to inflation. ‘IT HAS BEEN AN EXCITING START TO THE YEAR FOR ASIA’ ASIAN MARKETS In Asian financial markets, valuations have been hit hard. The region saw a significant bounce in the first month of 2023 as confidence has returned. Gabriel Sacks, manager of abrdn Asia Focus, says: “It has been an exciting start to the year for Asia. Inflation has been relatively benign, particularly in China. Increasingly, there is an expectation that there might be pent-up spending – household savings have increased a lot. This is worth bearing in mind.” He admits there are still some reasons for caution. It is still not clear how high interest rates could go and this could impact certain markets, such as India. He adds: “2023 could be a tough year for growth and earnings could also slow. But Asian companies have been more conservative and economies have generally been managed in an orthodox way. This positions Asia well and it should remain the powerhouse for global growth.” Elsewhere, more caution is warranted. Martin Connaghan, Murray International Trust manager, says the team is still finding plenty of opportunities, particularly in sectors that have been sold off, but remains diversified and defensive: “We have holdings across Latin America, Asia and Europe. The only area we don’t hold is Japan – we have a level of frustration with Japanese companies on their conservative capital allocation. We are well-diversified across industries and sectors, holding energy, consumer staples and telcos. We are underweight those areas that don’t offer high or consistently growing dividends, including the software space of technology and most consumer discretionary companies. “We’re still quite cautious, particularly after the recent rally. We expect to see S&P 500 earnings at around 3% and sales growth slowing to a similar level. In general, employment has had to drop further before the cycle turns. Activity has fallen, but we need to see unemployment numbers tick up to bring prices under control.”