Upbeat markets at the beginning of the year

Upbeat markets at the beginning of the year
Upbeat markets at the beginning of the year
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Both equity and bond markets managed to carry the momentum of the good start into 2023  to the second trading week of this year. The broad US equity market gained about 2.6%, the European market about 2%. Due to the fall in yields on the bond markets – 10Y US Treasury bonds are traded at a yield of around 3.5% *) – the technology sector and, especially in Europe, the real estate sector outperformed the overall market.

Additional rate increases necessary

The positive factors clearly prevailed last week. For the time being, we can see a good combination of the labour market remaining in good shape and wage pressures rising less significantly. Therefore, the probability of second-round effects on inflation has declined. It is important to bear in mind the level of wage increases, which will make further interest rate increases necessary.

Consumer confidence in the USA on the increase

The US inflation rates were published last week exactly to the decimal point, as predicted. Headline inflation over the last twelve months was 6.5%, the core rate excluding the volatile energy and food components was 5.7%. A bigger surprise was delivered by the University of Michigan’s consumer confidence index: consumer sentiment, which had been trending downwards since the outbreak of the Corona pandemic mainly on the back of rising prices, came as a significantly positive surprise relative to estimates.

Source: Refinitiv Datastream; Development of the past 10 years; Data as of 17.01.2023
Note: Past performance is not a reliable indicator of future performance.

The important 12M forward estimate of inflation also fell to now 4.0%. One of the main goals of central banks is to contain inflation expectations.

The risk of recession is on the decline

In Europe, the steadily falling gas price helped to dampen inflation expectations a little. The renewed rise in crude oil and industrial metals, but also in the price of gold, illustrate that the price trend for commodities and precious metals remains volatile. The opening of China from the Covid restrictions has raised expectations of rising demand for these commodities and has overall contributed to a more positive assessment of the global economy. Numerous analysts are in the process of revising their forecasts, now assuming a lower probability of recession for the USA and especially for Europe.

European equity allocation increased in the Erste AM funds

In our mixed funds and asset management portfolios, we have left the equity portion at a neutral level. While the positive factors on the inflation side are boosting the markets, the possibly more negative factors affecting the economy and corporate results are still pending. In the equity segment, we took advantage of the positive momentum and the more favourable valuation of continental European equity markets and increased the allocation. We like small cap companies (i.e. companies with a stock market value in the two to three-digit million range). At the same time, we reduced the weightings of Japan and the USA. In Japan we can currently see an interesting change in central bank policy. The successor of the outgoing central bank governor, Haruhiko Kuroda, could once again bring the interest rate policy back into a somewhat less expansive range.

*) Source: Erste AM, 16 January 2023

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Prognoses are no reliable indicator for future performance.

Please note that an investment in securities also entails risks in addition to the opportunities described.


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This document is an advertisement. Unless indicated otherwise, source: Erste Asset Management GmbH. Our languages of communication are German and English.

The prospectus for UCITS (including any amendments) is published in accordance with the provisions of the InvFG 2011 in the currently amended version. Information for Investors pursuant to § 21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH pursuant to the provisions of the AIFMG in connection with the InvFG 2011. The fund prospectus, Information for Investors pursuant to § 21 AIFMG, and the Key Information Document can be viewed in their latest versions at the web site www.erste-am.com within the section mandatory publications or obtained in their latest versions free of charge from the domicile of the management company and the domicile of the custodian bank. The exact date of the most recent publication of the fund prospectus, the languages in which the Key Information Document is available, and any additional locations where the documents can be obtained can be viewed on the web site www.erste-am.com. A summary of investor rights is available in German and English on the website www.erste-am.com/investor-rights as well as at the domicile of the management company.

The management company can decide to revoke the arrangements it has made for the distribution of unit certificates abroad, taking into account the regulatory requirements.

Detailed information on the risks potentially associated with the investment can be found in the fund prospectus or Information for investors pursuant to § 21 AIFMG of the respective fund. If the fund currency is a currency other than the investor's home currency, changes in the corresponding exchange rate may have a positive or negative impact on the value of his investment and the amount of the costs incurred in the fund - converted into his home currency.

This document serves as additional information for our investors and is based on the knowledge of the staff responsible for preparing it at the time of preparation. Our analyses and conclusions are general in nature and do not take into account the individual needs of our investors in terms of earnings, taxation, and risk appetite. Past performance is not a reliable indicator of the future performance of a fund.

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