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A Chief Investment Officer’s View On Where To Invest In 2023

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With so many uncertainties coming our way, recession, and general election just to name a few, there’s a lot of jittery investors out there. Throw in volatility, rise of inflation, hike in interest rates, and we have ourselves a storm coming up next year.

Not sure where to invest? Smart Investor recently spoke with Lee Sook Yee, Chief Investment Officer, Kenanga Investors Berhad to find out more about this hot topic.

Lee Sook Yee, Chief Investment Officer, Kenanga Investors Berhad

Smart Investor: Analysts are saying that recession is coming next year, does Kenanga Investors agree? If yes, what contributed to it and will it be even worse than previous recessions?

Lee Sook Yee: A typical recession is characterized by declining GDP growth together with a rise in the rate of unemployment. In that respect, there is increasing likelihood that the USA and Europe will fall into a recession sometime next year.

Looking at consensus estimates, US GDP growth will slow from 1.7% in 2022 to 0.4% in 2023. Meanwhile, growth in the European Union is forecasted to decline from 3.3% in 2022 to 0.3% in 2023.

With regards to the causes of the recession, a cyclical slowdown in the business cycle is made worse by high inflation, tight monetary policy and geopolitical conflicts. The magnitude of recession is still uncertain, and will depend on many factors.

Recessions in the past such as the 2008 financial crisis were driven by subprime mortgages and a subsequent liquidity crisis when Lehman failed. The issues this time around centers on high inflation and the resulting tight monetary policy by central banks to combat it.

Hence the magnitude of the recession would be the persistence of inflation and the willingness of policy makers to ease policy when inflation starts to cool. For Malaysia, growth will slow in-line with global growth but should still remain relatively resilient supported by domestic consumption despite the drag from exports.

Analyst expect a lower growth rate but still above 4% for 2023 with stable employment.

Photo by Pablo Heimplatz on Unsplash

SI: What is Kenanga Investors’ market outlook for 2023? What are the things to look out for?

LSY: We think 2023 could see a market rebound depending on how long inflation takes to cool and the corresponding policy response from central banks. Global markets should be able to embark on a sustainable rebound once central banks signal a pause or a turn in policy stance.

For now, trends in the datapoints point to lower inflation by end of 2Q’ 2023 due to easing supply side constraints, tighter policy working with a lag and base effects.

Markets have declined significantly in 2022, pricing in higher rates and also a slowdown in growth. Looking a past history, markets tend to bottom about 1-2 quarters before the worst period in growth and earnings and sometimes even ahead of the final rate hike.

Image by benzoix on Freepik

SI: As a retail investor, where should we invest our hard-earned money in 2023?  

LSY: Overall, we expect a recovery in global markets for 2023 after the sell-down in 2022. Valuations have become cheaper across the board and investors are highly cashed-up.

Earlier in the year, we think bonds could perform better as inflation peaks. Meanwhile equities should recover thereafter, once the growth concerns get priced in and the central banks move to a more supportive stance.

When equities rebound, we should see strong performances across the board regardless of geography. Malaysia also stands to see better days, as uncertainties abate post-election and global macro concerns cools. 

The Answer To Where To Invest In 2023

Hope you now have the answer on where to invest for next year. As we approach the end of the year, take the time to unwind and spend quality time with your loved ones.

Read: Where To Invest In 2023: Amidst The Recession And General Election

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