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Staying vigilant online

 
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Individuals purporting to work for Banque de Luxembourg are contacting people and misusing the Bank’s name, logo and address to offer fraudulent savings and investment products.

Staying vigilant online

After a year marked by geopolitical tensions, the energy crisis and inflationary pressures, Guy Wagner, Chief Investment Officer at the asset management company BLI - Banque de Luxembourg Investments, looks back at the major issues facing economies in 2023 and the potential investment opportunities.

Listen to the full podcast

 
  • The economy: are we over the worst?
  • Recession: is it inevitable?
  • Inflation: has it peaked?
  • Interest rate hikes: will they continue?
  • United States: will it avoid recession?
  • China: what impact will the reopening of its economy have?
  • Investments: what opportunities are there in this context?
  • Cryptocurrencies: how mature is this market?
  • Bond markets: how attractive are these markets today?
  • Asia: some good opportunities?

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Guy Wagner, after a turbulent year in 2022, which nonetheless showed a degree of resilience, what are you expecting for 2023? Are we over the worst?

Over the past 18 months, inflation has been our main concern. Now we are focusing on growth. Most of the leading indicators point to a fairly sharp decline in economic activity and from this perspective, a recession cannot be ruled out. Inflation, on the other hand, should continue to fall, as we have already seen in the United States. This is perhaps the most positive factor. The main uncertainty is what will happen to wages and employment costs.

Is recession inevitable?

It might be avoided but it is a risk we must take very seriously. Last year, no one anticipated the extent of monetary tightening in the United States. There was the rise in long-term interest rates and a cycle of economic acceleration following the economies’ reopening in 2020. But now, all the leading indicators are clearly pointing to a fairly sharp slowdown.

All eyes are currently on China, which has decided to reopen its economy and borders after two years of an extremely harsh zero-Covid policy. How do you view this radical change in policy?

The change was necessary once the Communist Party realised that it could not continue with its zero-Covid policy. When the situation normalises, the Chinese economy should return to a slightly faster growth rate, but we know that it is unrealistic to imagine a return to the high growth rates of the past.

In these circumstances, what are the best investment opportunities?

In a scenario of slowing growth and falling inflation, high-quality bonds could attract investors again following a very bad year for the bond markets. This is what the equity markets seem to be anticipating as the cycle of interest rate hikes is expected to end by the middle of the year. In addition, if recession is avoided in the United States, corporate earnings won’t suffer too much and this will be a springboard for a positive scenario.

Does a falling market mean an investment opportunity?

Lower share prices definitely add a certain appeal. Equity valuation multiples contracted in 2022. Crucially, it is this valuation of shares that also determines the potential return over the long term. From this point of view, the fact that today's valuations are lower than a year ago is a positive feature. However, we need to remember that valuations are still relatively high.

Are there any geographic regions we should be focusing on?

Yes indeed. Today, there are a lot of factors in favour of the Asian markets, including Japan. In general, since the financial crisis, these markets have underperformed strongly compared to the US market. However, Japan held up relatively well in local currency terms in 2022. Valuation multiples are also much more attractive in Asia and could even be revised upwards again following China’s reopening. Generally speaking, Asian currencies are still undervalued.

What about gold, which had a challenging year in 2022?

Some people think that gold hasn’t really fulfilled its role as a safe haven against inflation. I don't entirely agree. Despite a significant rise in US interest rates and a strong dollar, both of which tend to be very negative for gold, the gold price ended the year flat in dollars but gained 6% to 7% in euros. In the longer term, we remain positive on the outlook for gold: interest rates are set to stop rising as is the dollar's appreciation cycle. These are very positive factors and it’s also worth noting that central banks, especially in Eastern countries, are continuing to make massive gold purchases.

 

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