AGF Insights | Outlook 2023

The Return of Normal

A Message From AGF's CEO and Chief Investment Officer

Kevin McCreadie says better days could be ahead
for investors, but only once central banks signal
their intent to end the current tightening cycle.

A Message From AGF's CEO and CIO

The Return of Normal

Kevin McCreadie says better days could be ahead for investors, but only once central banks signal their intent to end the current tightening cycle.

Asset Class Roundup

DECEMBER 6, 2022 | By: Tony Genua

A Tale of the Twenties: The Roaring 1920s and the Boomerang 2020s

Historically, investing in stocks after a 20% decline has tended to yield good outcomes for investors.

Three years ago, we contributed to the AGF Outlook by looking at the decade ahead, and in that piece we discussed the many innovations that would impact the global economy in the future. Little did we know that around the corner there would be a global pandemic that would not only accelerate many of those trends, but also introduce other market forces, such as inflation and deglobalization.

The first years of the 2020s have seen some tumultuous events, to be sure, but many have a common aspect: they signal a return to previously existing conditions. Indeed, the 2020s remind us of a boomerang, returning some conditions of what we might have thought were in the distant past, but are now influencing the investment landscape.

DECEMBER 6, 2022 | By: Tristan Sones

Is the Bond Bear Over Yet?

Slower economic growth should trend inflation lower, providing a tailwind for fixed income in 2023.

With the end of 2022 approaching, many investors are asking themselves, “When is it all going to be over?” The war in Ukraine, high inflation, interest rate hikes? The answer is, unfortunately, “Not yet.” But we are hopefully getting closer.

As developed market central banks such as the U.S. Federal Reserve continue to tighten monetary policy, although at a slower pace, 2023 will start out much the same way 2022 is ending. Markets have been quick to get excited about the prospects of Fed tightening – which is still ongoing – coming to an end, even going so far as to price in some easing towards the end of 2023. Markets have not, however, been focused on the fallout from all this tightening. The answer is much slower economic growth, and likely a recession. That is not a good thing, but it should allow elevated inflation to trend lower and provide a tailwind for fixed income in 2023. If China fully reopens, it could provide a partial offset to this slower-growth scenario, but the prospects do not look promising given the current COVID situation and the Chinese government’s commitment to its Zero COVID stance.

DECEMBER 6, 2022 | By: Tom Nakamura

FX: Eat Your Greens

Currency markets are likely to be broadly rangebound and continue to be characterized by high volatility.

Every single morsel. Not a grain of rice left in my bowl. Growing up, our dishes needed to be licked clean before dinner could give way to dessert, but the anticipation of a sweet treat kept me going.

Like me, the markets, too, are looking forward to their dessert. If inflation-taming rate hikes are the main meal we have been forced to eat in 2022, the prospect of an after-dinner delight seems a just dessert. But is it even on the menu? The answer to this question will be the key for foreign exchange (FX) markets in 2023, especially for the U.S. dollar (USD).

DECEMBER 6, 2022 | By: Steve Bonnyman

Real Assets May Still Outperform, but Be Cautious

Steadying rates and peaking inflation could generate a positive tailwind for much of the Real Assets complex.

Notwithstanding the outperformance of Real Assets versus broader equities in 2022, the outlook for the group continues to appear positive into 2023.

Granted, the market continues to struggle to define a clear outlook for next year. But a consensus appears to be forming that a peak in inflation is within sight, and with it the potential for a cap in rate hikes (and maybe even rate cuts later in the year) and a rebalancing of the global economy. Steadying rates, continued inflation (even after it moderates), a peak in the strong U.S. dollar and the first signals of a China re-opening could generate a positive tailwind for much of the Real Assets complex.

DECEMBER 6, 2022 | By: Bill DeRoche

Why Hedging Still Makes Sense in 2023

An equity hedge can provide insulation to shocks by lowering a portfolio’s volatility, and over time lower volatility may translate to greater wealth.

Not surprisingly, anti-beta equity strategies did very well for investors who followed them in 2022 – after all, performing well when the stock market as a whole is doing poorly is exactly what such strategies are supposed to do, and 2022 was a very bad year for equities. Now, investors are hoping 2023 will bring respite from central banks’ punishing interest rate hikes and a resurgent stock market, and many might be thinking equity hedging will no longer be a winning strategy. They might be wrong.

In fact, there are several reasons to believe that anti-beta hedging strategies – which, generally speaking, seek to short equities that have higher betas and go long on equities that have lower betas – will remain important tools to counter market volatility and risk in 2023.

Four Geopolitical Hotspots That Could Impact Markets in 2023

An Income Investor’s Guide to the Return of Normal

Deglobalization, Inflation and What It Means for Emerging Markets

A New U.S. Law Gives a Boost to Sustainability-Themed Investing

Podcast

The Politics of ESG Investing

What Happens When Central Banks Pivot?

Why Privatizing Part of Your Portfolio Is a Priority

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