Last year, financial markets delivered the worst returns in decades for a typical balanced investor. The average total return from US equity and government bond markets was -15%, the worst since 1931, recorded in the middle of the Great Depression.

2022 was another year of dollar strength, which is not surprising considering the hawkish rate policies of the Fed. The dollar index gained 8.2% as EUR, GBP and JPY lost 5.8%, 10.7% and 12.2%, respectively. Only certain emerging market currencies outperformed the dollar; especially the Brazilian real and the Mexican peso. Rising energy prices stoked inflation during 2022 and this asset class was indeed the only area that performed well. Global commodities rose by 26%, following a 40% performance in the year prior. The cyclical nature of this market and current trends would indicate to us that positive performance will be a lot harder to achieve across commodities in 2023.

No doubt, 2022 was a challenging year on many fronts. As a result, going into 2023, sentiment amongst investors, consumers and corporate managers is poor. There are a variety of concerns making the bigger picture more difficult to decipher.

Unlike previous shocks such as the 2008 financial crisis or the 2001 dotcom bubble and subsequent 9/11 events, this time around we have to deal with more layers of complexity and have to consider several more lagged effects that make a comprehensive analysis of the current situation and forecasts of potential medium-term outcomes all the more challenging.

In a nutshell, what we are currently experiencing are the effects of a combination of previous demand and supply shocks due to the global pandemic, exacerbated by monetary and fiscal stimuli provided to alleviate some of the negative effects of these shocks
(collapse in demand) but creating some other negative side effects in turn (delayed demand response and inflation) in addition to central banks trying to address one of the negative side effects (inflation) whilst trying to make sure it does not cause damage to another important variable (employment). All these various parameters impact an economy in different ways, have different response functions and create second-round effects.

As always, it is impossible to know what the future holds but, in our business, it pays to use different scenarios and be very open-minded to all potential outcomes. This includes considering the positive and negative extremes but also the many shades of grey in between. Of course, this approach does not lend itself to spectacular proclamations about a certain dramatic outcome but it has been a helpful tool to navigate choppy waters in the past. Primarily it helps us avoid getting sucked into a prevailing consensus thought bubble.

The information set out in this document has been provided for information purposes only and should not be construed as any type of solicitation, offer, or recommendation to acquire or dispose of any investment, engage in any transaction or make use of the services of Signia Invest. Information about prior performance, while a useful tool in evaluating Signia Invest’s investment activities is not indicative of future results and there can be no assurance that Signia Invest will generate results comparable to those previously achieved.

Any targeted returns set out in this document are provided as an indicator as to how your investments will be managed by Signia Invest and are not intended to be viewed as a representation of likely performance returns. There can be no assurance that targeted returns will be realised. An estimate of the potential return from an investment is not a guarantee as to the quality of the investment or a representation as to the adequacy of the methodology for estimating returns.

The information and opinions enclosed are subject to change without notice and should not be construed as research. No responsibility is accepted to any person for the consequences of any person placing reliance on the content of this document for any purpose.

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Signia Invest is a trading name of Arbion Limited. This document has been approved and issued by Arbion Limited, Authorised and regulated by the Financial Conduct Authority FCA Registration No 513138. Registered in England and Wales No 7044573. Registered office One Connaught Place, London, W2 2ET.