15 bold predictions for the year ahead
If there’s ever a truism of investing, it’s that markets are unpredictable. Forecasting more than a few months out is fraught. That said, taking a walk down memory lane shows that some of the 2022 bold predictions were spot on. For example, the prediction that the crypto bubble would burst, or that inflation would remain higher.
On the flip side, we heard forecasts of smooth markets for five years or, even more painful, that interest rates would remain lower for longer. The benefits of hindsight and all that…
Once again, we’ve asked our fund managers to look into the crystal ball and share their dangerous or bold predictions for the year ahead. Four of our fund managers are tipping for rate cuts by the end of 2023, while others are pointing to a brighter future for certain asset classes. Inflation and interest rates were a clear theme, regardless of the type of call.
We've grouped these 15 fund manager predictions into the 11 categories below – and as a bonus for those who love their sports, we even ended up with three sporting tips.
Our featured experts include:
- Jun Bei Liu, Tribeca Investment Partners
- Nick Sladen, LSN Capital Partners
- Matthew Kidman, Centennial Asset Management
- Marcus Padley, Marcus Today
- Catherine Allfrey, WaveStone Capital
- Robert Gregory, Glenmore Asset Management
- Andrew Clifford, Platinum Asset Management
- Nick Griffin, Munro Partners
- Mary Manning, Alphinity Investment Management
- Michael Goldberg, Collins St Asset Management
- Oscar Oberg, Wilson Asset Management
- Ben Clark, TMS Capital
- Dion Hershan, Yarra Capital Management
- Romano Sala Tenna, Katana Asset Management
- Anthony Aboud, Perpetual Asset Management
Note: We would like to thank the fund managers for sharing their insights for 2023 in the spirit of the Outlook Series. All of the fund managers featured in this series run diversified portfolios. This list is not, nor is it intended to be, a set of recommendations. Please do your own research and seek advice from a professional before making any investment decisions of your own. Past performance is not a reliable indicator of future returns.
This vision was filmed on the 6th and 13th of December 2022. You can watch the video by clicking the player, listen to an audio version, or read an edited transcript below.
Matthew Kidman, Centennial Asset Management: Hello, I'm Matthew Kidman.
Ally Selby, Livewire Markets: And I'm Ally Selby. And today, we're going to be asking our fund managers to dust off their crystal balls and give us a bold prediction for the year ahead.
Matthew Kidman: Good luck with that one. Predictions never ever work out.
Ally Selby: I know fund managers hate giving predictions about the future, but I'm going to push you for one, what's a bold or dangerous prediction for the year ahead?
#1: Asian equities to benefit in the global economic slowdown
Expert: Jun Bei Liu, Tribeca Investment Partners
I actually asked my son, "What do you think is going to come?". One of his first answers was that Donald Trump is potentially coming back. I said, “that’s not for 2023, it’s the year after.” Perhaps that’s a high likelihood.
I think my bold prediction is I believe that Chinese equities and Asian equities will do pretty well in the next 12 months. Because of the macro backdrop, they’re much cheaper.
The economy was depressed for a long time and now it’s reopening. Everywhere else is heading into a slow-down environment. Maybe not a recession, but we will slow down so the economy isn’t a bright spot.
#2: Inflation to stabilise or even plummet with rate cuts by the end of the year
Expert: Nick Sladen, LSN Capital Partners
We think by the third quarter of calendar year 2023, it is possible that the RBA’s inflation rate is back within the 2-3% range and they’ll already be cutting interest rates to stimulate economic growth, which has slowed and stop the decline in the housing market.
Expert: Marcus Padley, MarcusToday
That the central banks are behind the curve.
This might sound silly, but this time last year we were talking about interest rates staying the same all year. Philip Lowe even apologised to anyone who took out a mortgage on his predictions this time last year. The RBA, the FOMC were wholly behind the curve on interest rates and inflation.
I think they could be behind the curve again on having overcooked it on interest rates. I think we could see plummeting inflation and we could therefore suddenly realise growth is the issue, not inflation, not interest rates. And that would surprise the markets.
Expert: Nick Griffin, Munro Partners
We did this interview a year ago and I think I said that I thought all the risk-free rates would stay low for all the 2022. And in the end that was completely wrong. Rates backed up dramatically, inflation came back dramatically.
If you think about a year ago, many people thought that rates would stay low for a very long period of time. Central banks were a hundred per cent wrong with their guidance. Philip Lowe said that rates would stay zero for three years.
I'd just put it to the viewers that maybe central banks are just as wrong this year as they were last year and that rates can't stay high for the next three years. We might find this time next year that we're in a very big slowdown and we're going to have to cut rates quite dramatically. I don't see a lot of people talking about that right now.
Expert: Anthony Aboud, Perpetual Asset Management
I'm going to go out there and say interest rate expectations to peak, inflation to peak, and potentially the central bank in the US or the Fed or the RBA to have one cut next year.
Everything we’re seeing from the bottom-up perspective, outside of labour, is lead indicators are starting to look a bit disinflationary. We think as corporate profit comes under a lot of pressure next next, at some point, the Fed put, which is much lower than it used to be, might be exercised at some point next year.
#3: China will disappoint markets and export disinflation
Expert: Matthew Kidman, Centennial Asset Management
On the macro front, I think thing that seems to be appearing in my eyes is that Australia and the rest of the world's expecting China to open up out of COVID and just by opening up that will be a winner. My suspicion is China will open up but they'll continue to disappoint. I think things there are worse than we think. I think they've got high unemployment. Just by opening up is not going to do it.
So China's going to disappoint and I think really boldly they'll start exporting disinflation around the world again because they've got a lot of excess capacity.
#4: A farewell to arms (and Putin)
Expert: Catherine Allfrey, WaveStone Capital
Bold or something we would wish for would be the end of the Ukraine war and maybe a Putin regime change.
#5: Oil and gas prices spike again
Expert: Robert Gregory, Glenmore Asset Management
My bold prediction is another spike in oil and gas prices.
I know as we've all felt the pain of rising prices in oil and gas the last 12-18 months. However, when I'm looking around at the government, what they're proposing and implementing in terms of policies, I feel everything's pointing towards less supply and high prices. We're seeing price caps being talked about. I think oil and gas companies are terrified of spending money because the goalposts keep changing. I think unfortunately we're going to see less supply and potentially high prices, particularly as economic growth recovers next year.
#6: Shortages in modern housing stock in China
Expert: Andrew Clifford, Platinum Asset Management
I think we will see a good recovery in residential property sales in China. It has the potential to be so significant that by the time we get towards the end of the year, instead of talking about our oversupplied market in terms of modern housing stock, we will be talking about outright shortages.
#7: Tech wreck 2.0
Expert: Mary Manning, Alphinity Investment Management
My prediction has to do with the tech sector.
As we’ve discussed before, NASDAQ is down 30%. Within that, you have a lot of stocks that are down 70-80% and you've seen some distress in the tech sector in Silicon Valley, but you actually haven't seen a lot of companies go bankrupt.
I think one thing we're going to see in 2023, if this is tech wreck 2.0, is that some of those very weak companies, companies with weak business models, companies with weak balance sheets are actually going to go bankrupt and get delisted.
A close cousin to that is in VC land globally. A lot of these start-ups got funded when money was free and interest rates were near zero. I think it's going to be a bit of a graveyard for some of the VC land and you're going to see some of those very weak companies on NASDAQ actually go bankrupt and get delisted.
#8: Additional inflation encouraged by governments
Expert: Michael Goldberg, Collins St Asset Management
Certainly, for the consumer and the investor out there, inflation is of great concern to us. Given the environment we're in and the amount of money that's been printed over the last couple of years and handed out on mass, I'm not sure that there aren't many indebted countries that wouldn't appreciate seeing the real cost of their debt being inflated away. It's a bit of a frightening thought to think that our governments would be keen to see additional inflation, but self-interest is a powerful thing.
#9: Small-caps to outperform
Expert: Oscar Oberg, Wilson Asset Management
Small-cap companies will outperform large-cap companies for the greatest margins since the GFC.
#10: The great return of the bond market
Expert: Ben Clark, TMS Capital Management
2022 was really one for the ages and I think one of the bizarre things that we saw this year, the drawdown in equity markets is not unexpected, you see it frequently. A drawdown in the bond market in sync with a drawdown in the equity market is unusual. In the US, you’ve got to go back around 135 years to see a year where you saw both asset classes come off to the magnitude that they have. This sounds a bit weird from a guy who favours the equity market, but we were seeing some really good corporate bond flows toward the end of the year.
My bold prediction is the bond market really snaps back in 2023.
I think we're seeing equity-style returns with much less risk than you get in equities. As you start to hopefully see the peak in the rate cycle, you will start to see the money flow back to debt, you can make some capital upside and lock in some really good returns.
#11: Recapitalisation in REITs
Expert: Dion Hershaw, Yarra Capital Management
We think one of the most vulnerable parts of the listed market is the REIT sector.
Our central case is a very large proportion of that sector will have to get recapitalised and raise equity. Our thinking effectively is that property has virtual circles and doom loops. I think we're heading into one of those doom loops now. As you look across shopping malls and offices, what's pretty clear is occupancy's going down, rent's going down, cost to operate is going up, capital intensity is going up, cost of debt is going up and all of that leads to a lot of pressure on the balance sheets of these REITs. So the valuations of property will go against them. We think gearing levels will prove to be too high.
A lot of REITs have already started to sell assets. We think that will become difficult as the market softens. History would suggest they'll end up recapitalising, asking shareholders for more money and in doing so, that will dilute returns. It’s probably one of the parts of the market we’re the most negative on and that's reflected across our portfolios.
And just for fun, here are three big bets for sports lovers in 2023
#1. A repeat winner for the AFL Premiership
Romano Sala Tenna, Katana Asset Management: I think it's hard enough to make a safe economic prediction, let alone something bold. So I'm going to chicken out here and I'm going to actually choose my team Geelong to go back-to-back Premiers in 2023.
Matthew Kidman: Come on, how bold is that? What are they in the betting? They must be in the top two.
Romano Sala Tenna: Well, I think for any sporting team, going back-to-back is a pretty big achievement.
#2. The winner of the Rugby Union World Cup
Anthony Aboud: The Wallabies to win the World Cup.
#3. The winner of the NRL Grand Final
Andrew Clifford: The bulldogs win the NRL Grand Final.
Do you agree with these bold predictions or have a dangerous call of your own?
Let us know in the comments below.
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Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.