Another difficult stock market year ahead
27. January 2023
- Retail funds
- Institutional investors
Daniel Zindstein, Managing Director of Zindstein Vermögensverwaltung believes that current stock market trends, driven by declining inflation expectations and looser monetary policy, may be premature. He notes that inflation is already affecting all areas of life and that many price increases are yet to come. With excess liquidity still present in the markets, he anticipates a slowdown in economic momentum. He believes that market prices have yet to fully reflect real profit declines.
While attractive yields may be tempting, he advises caution in terms of making strategic investments, stating that it is still too early. He believes that 2023 will present some opportunities in key asset classes and explains his strategy in his interview, using the Zindstein Werte-Sammler (ISIN DE000A2DHUA1 (share class P)) fund as an example.
Are inflationary pressures no longer an issue in 2023?
The longing for a return to normalcy amidst the hope of diminishing inflation is a common sentiment, but one that may not come to fruition. With inflation rates surpassing three percent in 2021, eight percent in 2022 and possibly five percent this year, all prices within the economy and daily life are on the rise. The longer and further this trend is allowed to run, the more it takes on a life of its own. More importantly, many prices will only be raised this year when price pegs expire. These include energy prices, rents and leases, wages, insurance premiums and fees, and many more.
But aren’t central banks already putting on the brakes?
Regrettably, the reaction has come too late. The temporary nature of inflation was underestimated for too long. This led to the ECB only beginning to raise interest rates during the summer. A wage-price spiral has been in motion for quite some time. Furthermore, central banks have inflated their balance sheets significantly between 2020 and 2021, with the ECB adding roughly four trillion euros and the US Federal Reserve almost five trillion US dollars to these balance sheets. There has been little reduction so far and inflation continues to rise as a result. The process of reducing their balance sheets has yet to occur and we have yet to see any sign that large amounts of liquidity have been withdrawn from markets, as financial markets as a whole have risen.
Is there a recession on the horizon?
So far, the economies of the West have displayed remarkable resilience. This, in our opinion, can be primarily attributed to the significant increase in prices leading to nominal growth. Gradually, however, the consequences of rising prices and elevated interest rates are making themselves felt in the form of increased costs for corporations and a strain on consumers. This process, however, can take some time. Consequently, we anticipate a decrease in consumer demand and mounting pressure on corporate margins due to rising costs and declining demand as the year progresses.
We believe that the impact of declining real corporate earnings and the bankruptcy of weaker companies has not been fully reflected in equity and corporate bond markets. As such, we anticipate even more favourable entry prices.
Will markets be interesting in 2023?
In essence, markets that exhibit a reduction in excesses and provide sustainable returns are deemed compelling. However, we are still missing the final selloffs that typically occur during bear markets. We believe that the impact of declining real corporate earnings and bankruptcy among weaker companies has not yet been fully reflected in equity and corporate bond markets. As such, we anticipate even more favourable entry prices. The first candidates for us would be US corporate bonds, with the possibility of technology stocks later in the year.
The gold and energy sectors as well as defence stocks remain interesting for us due to structural reasons.
Perspectives, assessments and their implications – Zindstein Werte-Sammler
The Zindstein Werte-Sammler is a globally-focused mixed fund with a focus on equities. As its name implies, we invest in long-lasting, high-quality companies that possess inherent values, and aim to purchase these during market corrections at favorable prices. There are numerous investment opportunities available today. Currently, the portfolio is comprised of equities that are expected to be more resilient to economic fluctuations, providing stability to the fund during market downturns. To manage dominant macroeconomic risks, we proactively employ a combination of monetary, economic, and geopolitical strategies, including complete equity exposure hedging through derivatives. Our team is always monitoring market signals and ready to adjust hedging accordingly, should the situation warrant it. For institutional investors, family offices, and foundations, the fund's institutional share class (ISIN DE000A2DHUB9 (share class I)) may be an attractive option.
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