Conversations: What to Expect in 2023

We caught up with Ben Laider, global markets strategist at eToro to talk about all things 2023.

A self-described "contrarian positive" investor, he reasons independently from the ground up. He says, "with economic growth slowing everywhere outside of Asia, and recession risks high, there will be a continued premium put on earnings resilience and visibility by investors. This will likely stay a focus until inflation falls enough that central banks can look ahead to cutting interest rates. This will likely take much of 2023 to happen."

What is your overall theme and views for 2023?

We see an easing inflation and interest rates shock in both the US and Europe as the main driver of a better year. This is further supported by the world’s second largest economy, China, now going for growth. Whilst a less bad outlook for the heavyweight technology sector is another key market support.

Where are you finding opportunities today? 

We are contrarian positive. Back-to-back annual price falls are extremely rare in both equities and bonds. But the drivers will likely be the reverse of last year when earnings were firm but valuations plunged. Earnings will now catch up with slowing economies, whilst the outlook for an interest rate pause gives valuations some relief.

Have you stepped up research, shed investments - what is your strategy right now as you look at the year ahead?

Three quarters of global retail investors remain positive markets, or at least with no change to their investing appetite per our quarterly surveys. They have taken advantage of both lower prices and their long-term horizons. We have seen interest in a broader set of equity sectors, like energy, and asset classes, like commodities and alternatives. Internally, we have continued to expand our analyst team globally.

I'm guessing you are less inclined to pay for non-earners?

With economic growth slowing everywhere outside of Asia, and recession risks high, there will be a continued premium put on earnings resilience and visibility by investors. This will likely stay a focus until inflation falls enough that central banks can look ahead to cutting interest rates. This will likely take much of 2023 to happen.

As a whole, how do you think stocks by class size are holding up right now?

Small caps are bearing the brunt of the building economic slowdown, with their generally less diversified revenues and higher debt levels. But this is already reflected in the cheapest relative valuations versus large caps in over two decades. This will reward an active bottom-up, stock picking approach to the segment.

What's your 12-month outlook? We are positive. Equities have seen their lows and we think will end 2023 higher. Inflation is falling, we are near the end of the Fed rate upcycle, and a recession is far from inevitable. Repeat down years are rare and investor bearishness a contrarian support.