Global financial markets could be in for another choppy year in 2023, say analysts, with the first quarter likely to be the most volatile.
A number of factors weighed on markets in 2022, with multi-decade high inflation and the Russian invasion of Ukraine putting notable strain on economies already battling to recover from the Covid-19 pandemic.
As such, the US Federal Reserve — the world’s most influential central bank — changed its stance on inflation being transitory and began aggressively raising rates in an attempt to tame rising prices.
Analysts say the key trading themes that dominated much of 2022 will continue into the new year with markets looking out for a pivot in interest rates policies by central banks.
“Many central bankers have already started easing off the brake [on aggressive monetary tightening] and we’re seeing plenty of signs of pressures easing, albeit perhaps not as much as policymakers would have liked by now,” said Oanda senior market analyst Craig Erlam.
“As such, investors are going into 2023 with a cautious mindset, prepared for more rate hikes and expecting recessions around the globe. The bar is low, but arguably reasonably so,” added Erlam.
According to Bloomberg, 2022 was the worst for global stock markets since the financial crisis of 2008.
The local bourse lost 0.9% for the year, cushioned by gains in the banks and industrial metal indices, up 11.7% and 6.5% respectively.
Raymond Parsons, economist at the North West University business school, noted that the much-better-than-expected GDP growth figures for the third quarter gave SA a stronger “cushion”. However, he cautioned that “SA’s economic prospects in 2023 will be broadly shaped by global developments, Eskom’s rotational power cuts and policy implementation commitments by the government.”
“The reality nonetheless is that in the meantime business and consumers in SA will face another tough year with strong inflation, rising interest rates, high unemployment, load-shedding and low growth, all of which make for a challenging economic period ahead.”
The rand, which had its worst day for the year on December 1 — plunging more than 3% on fears that President Cyril Ramaphosa was considering resigning over the Phala Phala scandal — managed to recover some ground as the year drew to a close, trading fairly consistently around R17/$. It does however end the year about 6.7% weaker against the greenback.
Meanwhile, China’s progressive loosening of Covid-19 restrictions, which weighed on global economic growth this year, gave investors hope that things could begin to pick up some time in the new year.
“For markets to see a solid rebound in the new year, a lot still depends on both how successful China is in reviving its economy and on whether the Fed gets the sort of inflation outcomes it needs to halt monetary tightening,” said SPI Asset Management managing partner Stephen Innes.
“As long as inflation remains elevated, market participants should expect the Fed to continue raising interest rates. Only when we see a turn in the Fed’s posture may markets start to see a bottom,” he said, adding that markets would also be keeping an eye on events in Ukraine and China.
