Global stocks face more hurdles in 2023
The MSCI All-Country World Index on track for its worst performance since the 2008 crisis
Reeling from a record $18 trillion wipeout, global stocks must surmount several hurdles if they are to escape a second straight year in the red.
With a drop of more than 20 per cent in 2022, the MSCI AllCountry World Index is on track for its worst performance since the 2008 crisis, as jumbo interest rate hikes by the Federal Reserve more than doubled 10-year Treasury yields — the rate underpinning global capital costs.
Bulls looking ahead at 2023 might take solace in the fact that two consecutive down years are rare for major equity markets — the S&P 500 index has fallen for two straight years on just four occasions since 1928. The scary thing though, is that when they do occur, drops in the second year tend to be deeper than in the first.
Here are some factors that could determine how 2023 shapes up for global equity markets:
Central banks
Optimists may point out that the rate-hiking peak is on the horizon, possibly in March, with money markets expecting the Fed to switch into rate-cutting mode by the end of 2023. A Bloomberg News survey found 71 per cent of top global investors expect equities to rise in 2023.
Big tech troubles
A big unknown is how tech mega-caps fare, following a 35 per cent slump for the Nasdaq 100 in 2022. Companies such as Meta Platforms Inc. and Tesla Inc. have shed some two-thirds of their value, while losses at Amazon.com
Inc. and Netflix Inc. neared or exceeded 50 per cent.
Earnings recession
Previously resilient corporate profits are widely expected to crumble in 2023, as pressure builds on margins and consumer demand weakens.
China, a turning point
Beijing’s early-December decision to dismantle stringent Covid curbs seemed like a turning point for MSCI’s China Index, whose 24 per cent drop was a major contributor to global equity market losses in 2022.