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NEW DELHI: Although inflation is likely to ease during 2023, the US will enter recessionary conditions in the first half of next year, after the UK and Europe. An improved economic landscape in the second half of 2023 is what Macquarie Asset Management bets and believes investment themes in the following 4 major dimensions are likely to play out.
In 2023, investors are likely to chase equity investments defensivethey have high yields and offer protection against inflation.
Energy
Energy security will continue to be a dominant theme in the coming year. Macquarie Asset Management predicts that while Europe may have enough resources to survive this winter through increased imports of liquefied natural gas and reliance on other fuel sources, the biggest challenge will come next year. The asset manager also believes that the latest stresses in energy markets could accelerate the transition to a low-carbon energy system.
Governments and companies around the world are in the process of moving towards the goal of net zero carbon emissions. An increasing share of energy comes from renewable sources such as solar, wind and hydroelectric production. Indeed, recent estimates suggest that renewable energy sources are now cheaper than traditional sources such as oil, gas and nuclear power. As we point out in our “Energy Security and Energy Transition” section, we believe this trend is unlikely to reverse now, and may even accelerate in some regions, although select individual governments at the national or provincial level are seeking to retain a large role as a supplier of “brown” energy sources to help meet short-term energy needs.
Energy security and carbon reduction go hand in hand
For years, the argument has been that energy security and sustainability cannot go hand in hand. But now it is seen that these two priorities must be met simultaneously, often in concert with each other. And that has resulted in huge opportunities in green energy.
Equities
Macquarie Asset Management remains wary of equities due to earnings risk and predicts equity markets will fall as the developed world endures recessionary conditions. The asset manager sees opportunities in playing key themes such as deglobalization and onshoring, with construction and engineering firms, railways and consumer discretionary firms becoming key beneficiaries.
“In the current market environment, at least for those unwilling to lock up all their money for the long term, we think most investors should plan to retain a significant role for stocks in their portfolios through 2023,” Ben Way, group head at to Macquarie Asset Management, he said in his report.
Global Debt Markets:
Bond yields rose significantly in 2022, offering attractive valuations and strong levels of protection for investment-grade investors in high-yield markets and developed world sovereigns. However, in Macquarie Asset Management’s view, a defensive position is justified given the potential for recession and inflation to undermine a strong start to 2023.
Real Estate: Attractive Properties in Hard Times
In terms of real assets, infrastructure has grown in popularity among institutional investors in 2022 due to the defensive nature of its inflation-linked cash flows. In what is expected to be a challenging and volatile macroeconomic environment in 2023, investors are likely to continue to be attracted to equity investments that are defensive, high yielding and offer inflation protection.
“Infrastructure has all these qualities in large quantities. It also offers exposure to structural drivers of growth in the form of digitalisation, demographics and the energy transition. In a world where there is a lack of cyclical growth, assets with structural drivers of growth could start to attract a premium. A stable profile yield and inflation-proofing characteristics of agriculture, along with exposure to new revenue opportunities from growing demand for nature-based solutions, also make it a relatively attractive place to be in the current macroeconomic moment,” said John Leonar, global head of equities at Macquarie .
There is a strong global appetite for infrastructure investment, particularly in renewable energy. Macquarie predicts $2 trillion of global inflows over the next five years, given the desire of several countries to launch significant climate policy initiatives.
Furthermore, in what is likely to be a difficult and volatile macroeconomic environment in 2023, Macquarie believes that agriculture’s stable yield profile, inflation-hedging properties, high yields and diversification benefits should see it continue to perform well relative to to other asset classes.
In 2023, investors are likely to chase equity investments defensivethey have high yields and offer protection against inflation.
Energy
Energy security will continue to be a dominant theme in the coming year. Macquarie Asset Management predicts that while Europe may have enough resources to survive this winter through increased imports of liquefied natural gas and reliance on other fuel sources, the biggest challenge will come next year. The asset manager also believes that the latest stresses in energy markets could accelerate the transition to a low-carbon energy system.
Governments and companies around the world are in the process of moving towards the goal of net zero carbon emissions. An increasing share of energy comes from renewable sources such as solar, wind and hydroelectric production. Indeed, recent estimates suggest that renewable energy sources are now cheaper than traditional sources such as oil, gas and nuclear power. As we point out in our “Energy Security and Energy Transition” section, we believe this trend is unlikely to reverse now, and may even accelerate in some regions, although select individual governments at the national or provincial level are seeking to retain a large role as a supplier of “brown” energy sources to help meet short-term energy needs.
Energy security and carbon reduction go hand in hand
For years, the argument has been that energy security and sustainability cannot go hand in hand. But now it is seen that these two priorities must be met simultaneously, often in concert with each other. And that has resulted in huge opportunities in green energy.
Equities
Macquarie Asset Management remains wary of equities due to earnings risk and predicts equity markets will fall as the developed world endures recessionary conditions. The asset manager sees opportunities in playing key themes such as deglobalization and onshoring, with construction and engineering firms, railways and consumer discretionary firms becoming key beneficiaries.
“In the current market environment, at least for those unwilling to lock up all their money for the long term, we think most investors should plan to retain a significant role for stocks in their portfolios through 2023,” Ben Way, group head at to Macquarie Asset Management, he said in his report.
Global Debt Markets:
Bond yields rose significantly in 2022, offering attractive valuations and strong levels of protection for investment-grade investors in high-yield markets and developed world sovereigns. However, in Macquarie Asset Management’s view, a defensive position is justified given the potential for recession and inflation to undermine a strong start to 2023.
Real Estate: Attractive Properties in Hard Times
In terms of real assets, infrastructure has grown in popularity among institutional investors in 2022 due to the defensive nature of its inflation-linked cash flows. In what is expected to be a challenging and volatile macroeconomic environment in 2023, investors are likely to continue to be attracted to equity investments that are defensive, high yielding and offer inflation protection.
“Infrastructure has all these qualities in large quantities. It also offers exposure to structural drivers of growth in the form of digitalisation, demographics and the energy transition. In a world where there is a lack of cyclical growth, assets with structural drivers of growth could start to attract a premium. A stable profile yield and inflation-proofing characteristics of agriculture, along with exposure to new revenue opportunities from growing demand for nature-based solutions, also make it a relatively attractive place to be in the current macroeconomic moment,” said John Leonar, global head of equities at Macquarie .
There is a strong global appetite for infrastructure investment, particularly in renewable energy. Macquarie predicts $2 trillion of global inflows over the next five years, given the desire of several countries to launch significant climate policy initiatives.
Furthermore, in what is likely to be a difficult and volatile macroeconomic environment in 2023, Macquarie believes that agriculture’s stable yield profile, inflation-hedging properties, high yields and diversification benefits should see it continue to perform well relative to to other asset classes.
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