Investment managers bet on debt versus shares in 2023

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Investment fund managers are betting on fixed income against equity markets in 2023 in a scenario in which all forecasts point to high interest rates for a while and uncertainty due to geopolitical tensions.

Companies agree that fixed income, whether public or private debt, will offer the best results in terms of risk-return, as the main economies are expected to enter recession in the first months of the year and, until they recover, equities will take a back seat.

Fixed income in 2023, according to Andbank, will not be very demanding with respect to maturities because companies have advanced their financing needs, while Singular Bank highlights its preference for monetary assets between 6 and 18 months and high yield bonds (riskier in the short term).

Deustsche Bank’s investment department gives priority to high-quality, high-yield bonds in companies with healthy accounts, such as those in the financial sector, although they do not neglect investment in public debt.

For their part, the directors of Bankinter point favourably to two- to five-year bonds, which they consider to have reasonable interest rates, because inflation is beginning to subside, as well as commodity prices and bottlenecks in production chains.

As for the stock markets, the firms indicate that in 2023 they may have upside potential, especially in Europe and emerging markets, although they carry greater risks due to forecasts of lower economic growth and inflationary pressures that point to interest rates of the Federal Reserve (Fed) and the European Central Bank (ECB) higher for longer.

This uncertainty also produced by the geopolitical situation makes Singular Bank bet on the sectors that precisely benefit from the rate hikes and the energy crisis, that is, banking, oil and renewables, and insist that the markets are being “complacent” about the yield curve and corporate profits.

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From Renta4 they make a positive nuance for the Latin American stock markets, where monetary policy can be softened downwards given that there began before the increases in interest rates and for the IBEX 35, the main index of the Spanish market, after having performed better than its European counterparts during this year.

In fact, they estimate that the Spanish selective could have an upward potential of 32% in 2023 and approach 11,000 points (compared to the range of 8,300 in which it is quoted now), an estimate that Bankinter reduces to 12%, close to 9,100 integers.

All firms agree that there will be an economic slowdown and recessions in the main countries in the first quarter of 2023, however, they diverge when forecasting a “soft” landing of the economy or a more bumpy one with a weak and fragile recovery before the “hawkish” messages (hard) of the main authorities of the central banks.

In this way, they forecast that by 2023 inflation will fall in a generalized way but it will still need time to return to the target level of 2% while the economies of the United States and the euro area will close the year with modest growth (but with more promising prospects for Spain).

However, economic uncertainty and the war in Ukraine, together with the recent resurgence of coronavirus cases in China that has caused some countries to impose restrictions on travelers who come from there, continue to weigh on investment firms when it comes to establishing a stable vision for next year.

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