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2023: Interesting challenges for investors next year

We enter a new year with new hopes and hopes for better things to come.

Before making an investment decision, you should do some analysis. What kind, how deep, what variables to look at, and so on. In other words, what are the events to watch out for to get the desired result?

We encourage you to analyze what happened in 2022 and apply the strategies that have worked well for those who choose to save.

Undoubtedly, inflation was the dominant theme around the world. The United States, the Eurozone, Japan, China, Brazil, and other Latin American countries have produced consumer price indices unlike anything seen in recent economic history. Another issue is Argentina, which has played with hyperinflation in the past.

In the United States, the world’s leading economy, the outlook for a recession is unclear. Although the first half of 2022 showed some contraction, the performance was not repeated in the second half of this year, which was reflected in the labor market and her PMI index.

First, special attention should be paid to claims for unemployment benefits. In other words, he outperformed market expectations for 18 weeks as of August in terms of the number of people who filed to receive benefits for the first time. The second concept, Purchasing Managers Index (PMI), is an economic indicator that surveys the purchasing managers of manufacturing companies. It dropped in the first few months, then recovered in Q3 and dropped in Q4.

The US Federal Reserve continues to seek convergence to 2% inflation using benchmark interest rates, but has yet to achieve the desired result. At his last Fed meeting, the consensus on benchmark rates was that there would be no rate cuts in 2023 and that the 2% inflation target should be reached by 2024. Therefore, we can expect further increases this year, but on a smaller scale.

Moving on to the Eurozone, the region has yet to fully reverse the effects of the Covid pandemic and is beginning to come under the onslaught of the Russian-Ukrainian war. With price increases, the consumer price index will reach 9.2% in 2022.

China keeps reminding us that Covid and its aftermath could take a long time to subside. It affects total supply. The opposite performance was shown by inflation, which fell from 2.8% to 1.6% year-on-year.

Now let’s take a look at Brazil, a trading partner that had a change of government at the beginning of the year, and its stock market. Earlier this month, the Bovespa index of Brazil’s major companies fell 3% of his, while the currency fell almost 4%. Now the trend is reversed. Bovespa has witnessed a positive day, with the Real up 5% since the beginning of the year. Inflation performance reversed during 2022. In Brazil, prices rose 5.9% year-on-year, with months of deflation continuing into the end of the year.

First conclusion: You need to be aware of the global situation when making investment decisions. Having a global vision helps us understand that transnational economic problems exist and the mechanisms used to solve them affect different regions.

Let’s leave the international level and look at the local situation. Argentina closes out 2022 with its consumer price index, whose year-over-year change was her 94.8%. As I said earlier, it reminds me of the days when double-digit fluctuations were the norm. In addition, the year was conditioned by commitments with the International Monetary Fund, non-accumulation of central bank reserves, the pace of official exchange rate devaluation (crawling pegs), and differential exchange rates for export activity.

The challenges of 2023 revolve around the upcoming presidential election and the uncertainty that this democratic act will bring to society at large. On the economic front, inflation and reserve build-up and public debt management in the peso will continue to be considered.

Second conclusion: The influence of the international environment can improve or worsen the domestic situation. We are not “cut off” from the outside world.

Nevertheless, it is possible to find and invest in suitable opportunities for each investor profile. If investors believe that inflation will continue to be the theme this year, they should look to assets that issuers do not rely on for funding (because interest rates continue to rise, making credit more expensive) or to using interest rates as a benchmark. You will feel a certain sense of security in the product that you do. Invest capital in indices as price levels rise; if their expectations are based on economic revitalization, they will look for assets related to industrial production, manufacturing and mass consumption. On the other hand, investors looking to dollarize their portfolios will find options in private company issuances where the core business generates foreign currency income, as well as domestic government bond issuances.

Finally, let’s not forget that it’s an election year. So it’s an investment opportunity for investors betting on political change.

The stakes are high and investors are on the lookout. Welcome to 2023.

* Yanina Skiba is the Commercial Team Lead at Liebre Capital.

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