Portfolio Positioning for 2023

We are reaching the end of a challenging year for financial markets. Interest rates are starting to squeeze households, the war in Ukraine continues, China struggles with its COVID policy, and many economies may already be in recession. The housing market has also experienced a slowdown across leading indicators such as construction activity, mortgage lending and most recently in sales prices.

Touching on investment matters, we’ve seemingly found some relative calm among stocks and bonds recently. Although we may still be in for further short-term volatility, it is hoped that in 2023, interest rate increases can be slowed or even stopped, as central governments grapple with inflation. This should give stocks a springboard for recovery sometime in 2023 and beyond, as long as corporate earnings fall within expectations and there are no extraordinary geo-political events.

Your Portfolio in this Environment

People have a habit of saying we're in a period of high uncertainty, yet we’ve never actually lived through a period of low uncertainty! For those that lived through the late 1970s and early 1980s, many will remember it was a similar environment that set the stage for a strong market tailwind. History shows that market recoveries can occur when they are least expected and can be short and sharp. They can also occur prior to economic recovery. That's why it is so important to be a participant in the markets. How we react to these challenging times will have a significant impact on our long-term financial goals, so we continue to preach the old adage that the true key to investment success is time IN the markets, not TIMING the markets!

The Bigger Picture: What You Should be Focused On

Very few investors have escaped the recent volatility and it is normal if 2022 has made you feel uncomfortable. However, we have reasons to remain hopeful for a more prosperous 2023. Rome was not built in a day, and those who maintain a long-term investment outlook should eventually be rewarded. Unless an investor is considered a 'high risk' strategist, we continue to adopt the traditional approach to asset allocation; a spread of cash, equities, bonds and property as part of a balanced portfolio. 

For the long-term investor, US equities have historically delivered a return above 'normal' inflation. As we reach a peak in interest rates, it is anticipated that the fixed interest sector (bonds) may finally deliver some returns for investors. The ESG story is now an integrated part of of companies' corporate philosophy, so we feel that the sustainable and renewable sectors (energy, water, wind, EV's etc) will become ever more significant over time. At the higher end of the risk scale, we may finally see Chinese equities perform better as COVID restrictions lift. 

This is not a solicitation to invest in these sectors, just some areas of interest to keep an eye on. Additionally, past performance is no guarantee to future returns. 

At AP Advisers Ltd, we strive to act as a steady hand and look forward to helping you with all aspects of your financial planning needs looking ahead. We are just an email or call away if you wish to discuss any concerns.

The AP Advisers team wishes you a happy and relaxing holiday, and health and success in 2023.