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What can investors expect in 2023? PGIM CEO David Hunt highlights three themes that are shaping the investment landscape and explains why fresh opportunities are likely to emerge in the new year.
- Higher rates and leverage: Rates have risen at a remarkably fast pace, and they are likely to stay higher now than we’ve seen for the last decade. This brings some uncertainty to the economy. Some of the largest growth in leverage around the world can be seen on government balance sheets, creating challenges for both developed and emerging markets. If investors follow the leverage, they will be able to identify some of the risk points that emerge over the next year.
- Upside for savers and fixed income: While higher rates can certainly have some risks, there are many upsides to it as well – particularly for savers who have been penalized over the last decade. For the first time in a long time, savers will be rewarded for investing in cash. Rising rates can be hard on fixed-income investors, but once rates are higher, fixed-income instruments will become more attractive. This sets the stage for a reallocation back to fixed income.
- Opportunities amidst rapid change: There is an incredible amount of change in the economy and the markets, and it’s happening rapidly, even beyond day-to-day fluctuations. There have been three entirely different market cycles in just three years: the COVID-driven selloff, the market’s recovery supported by fiscal and monetary stimulus, and the aftermath that has brought higher inflation and higher rates. It has never been more important for investors to take a long-term view of their portfolios. At this point in the cycle, it will be challenging to try timing the market. However, volatility can unlock opportunities by creating attractive entry points at reasonable prices. For this reason, 2023 may offer some of the best opportunities active investors have seen in a while.
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