The hope for the return of the bulls

Dhe stock market year 2022 is slowly coming to an end, and not a few investors will be happy when it’s over – looking at their own portfolio. It actually got off to a good start on the German stock market right at the beginning of the year. The Dax climbed above the 16,000 point mark on January 5 and sentiment was good, despite the supply chain problems that were already prevalent.

That changed abruptly when Russia invaded Ukraine and the resulting energy crisis as well as rising inflation and the various increases in key interest rates by the international central banks.

As a result, the stock markets went into reverse gear, and at the same time bonds made a comeback this year. The German Bund Future has lost around 35 points since January, which in turn means rising yields. Investors who lend money to Germany for a ten-year period are currently receiving an annual return of around 2.3 percent. A year ago, that was unthinkable.

Safe havens are scarce

Investors who built on a classic 60/40 portfolio again this year also fell under the wheels, because such a portfolio could not exploit its traditional advantages. “In 2022 safe havens were in short supply,” says Thomas Stucki from the St. Gallner Kantonalbank (SGKB). The bottom line is that what comes out of Dax & Co on the last trading day in 2022 is not irrelevant in the end, but for many investors it is of secondary importance after the challenging year. The focus is already on 2023.

If you summarize the many capital market outlooks of the past few days, one thing is clear: Next year everything will revolve around the development of inflation. “The inflation trend determines interest rate, stock, currency and real estate markets,” says Thomas Stucki. “Prices have long ceased to be determined by the war in Ukraine and the associated geopolitical tensions, but by fear about the state of the global economy and the currently extremely high inflation rates,” reports Nermin Aliti from Laureus Privat Finanz.


Christopher Scherbaum
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Image: Christoph Scherbaum

At SGKB, meanwhile, one believes in the return of the share. Although the economic prospects for the coming year are unsatisfactory, in the course of a weakening, stock market participants can develop positive prospects again. “In addition, we assume that inflation will slide back. High but declining inflation is usually a good environment for stock markets. We therefore expect the stock markets to develop positively next year,” says the current SGKB market outlook. “Companies that can pass on higher costs through prices can particularly benefit.”

Low valuations favor equities

In its capital market outlook for 2023, which it presented this week, Deutsche Bank is cautiously optimistic about the coming year. It is assumed here that the expected recession in the USA and Europe will be moderate. “Inflation will probably initially remain high, partly due to energy prices; however, policy rates should peak in the summer.”

The largest German bank predicts medium single-digit returns for the stock market. The forecast for the Dax is 15,000 points by the end of 2023. The experts see the broad American S&P 500 index at 4,100 points. Although the coming year could be a little more difficult economically, the fact that the stock market is ahead of the economy speaks for the asset class, they say. “As soon as there are signs of an economic recovery, prices should rise,” says Ulrich Stephan, chief investment strategist for private and corporate customers at Deutsche Bank. “Setbacks could offer good entry opportunities.”

Above all, the currently low valuations speak in favor of equities. “We have seen a significant adjustment in valuations over the past few months,” says Stephan. Corporate profits have increased significantly this year, but share prices have fallen sharply. The price-earnings ratio (P/E) for the American S&P 500 has fallen from 22.7 to currently 16.5 and for the Stoxx Europe 600 from 17.7 to 11.3, the chief investment strategist continued.

JP Morgan is blowing the same horn. “In view of the now significantly lower valuations and higher yields, the best long-term earnings prospects for more than a decade are prospectively available,” says the current long-term capital market outlook of the American investment bank. In the 27th edition of this annual analysis, the projected annual return for a mixed portfolio of 60 percent equities and 40 percent bonds increases from 2.8 percent to 5.1 percent annually in euros – the increase is even more impressive in dollars: from 4.3 to 7.2 percent.

Tilmann Galler, capital markets strategist at JP Morgan Asset Management, emphasizes that the turbulence of 2022 can be classified as a cathartic moment and is positive for investors with a long-term investment horizon: “While markets remain challenging in the short term, investors are standing for the first time since years a ‘complete arsenal’ available for allocation. There are positive return forecasts for all asset classes across the entire risk spectrum over the next ten to 15 years,” the economist continues. The horror investment year 2022 seems to have already been ticked off for many.

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