Rudi’s View: 2023 Will Be Different

Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Feb 01 2023

In this week's Weekly Insights:

-2023 Will Be Different
-FNArena Market Indicators
-FNArena Talks
-Change In 2023

By Rudi Filapek-Vandyck, Editor FNArena

2023 Will Be Different

Never underestimate financial market's ability (propensity?) to surprise when a majority view forms among investors and the experts that guide them.

Last year was all about the return of price inflation, the decisive response from central bankers and the consequences from both for economies, financial assets and corporate profits.

Judging from the first four weeks of January, the general slogan for 2023 is: And now for something completely different. Those worries I just mentioned, they are so backward-looking.

Instead the new points of general focus are all positives:

-Central bank tightening is nearing its end
-Official interest rates are projected to start falling later in the year
-Inflation and bond yields have peaked, and bonds are back as a valuable risk diversifier in portfolios
-China is re-opening, paving the way for a positive contribution to global growth
-Europe's energy crisis is on course to avoid worst case scenarios
-Economic recessions might be avoided altogether (we'll have slowdowns instead)
-Labour markets, economic data and consumer spending have all been fairly resilient to date
-The same can be said about corporate profits
-(Don't mention the war)

In hindsight, these are all valid catalysts for a risk-on rally, though observation number one is this year's unusually strong start into the new calendar year has taken most forecasters and market watchers by surprise.

I'd even go one step further: there's quite a dose of disbelief around the globe right now, and a number of (let's call them) less-exuberant experts are essentially flat-out rejecting what looks like too many expectations and forecasts that a new bull market is upon us.

One example to underpin my observations this year thus far: late last year UBS strategists Richard Schellbach and Akash Biradar put forward their year-end 2023 target for the local ASX200 index as 7500 on the basis of a pause in RBA tightening and relatively subdued profit growth generally for Australian companies.

Having witnessed the strong upward trend in early 2023, both went back to basics and wondered whether the general context has changed so much so that target needed to be increased?

Their response: Njet! While all of the above are positives, this has now well and truly been priced-in by fast-moving share prices. The current index level, argues UBS, leaves little room for re-rate. The economy is still expected to decelerate through the year ahead, making today's profit forecasts seem bloated, hence a new downgrade cycle won't be too far off.

UBS is sticking with its 7500 target by December. Spoiler: that's where the index is today (give or take).

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