Investing in 2023: what to do next year?

We are getting closer to the end of 2022 and it is right to ask ourselves what to invest in in 2023 and how the financial markets will perform in the year that is about to open. But, do you wonder how 2022 went and what mistakes you made in your investment strategy?

How to react to a difficult year like 2022?

Of course 2022 has been a particular year. The war in Ukraine fell like a “Black Swan” (2 in 2 years is a record!) on the European financial markets in particular. The war turned out to be the “coup de grace” to a year that was in any case negative.

In this article, therefore, we will find out together what to invest in 2023, but we will also try to give general indications to learn from your mistakes before thinking about what else to invest in without having done a minimum of analysis on the recent past of your investments.

Inflation will not go away

They tell you that inflation in 2023 is “destined to come back”. Are we sure it will slow? But what if it’s here to stay and has to accompany us for the rest of the decade?

During 2022, the agricultural sector lost 6 billion euros between harvests and damage to agricultural vehicles due to climate change only in Italy. Events like these drive up food prices due to scarcity. How can you think that the next few years will be better if the United Nations Conferences on Climate Change are struggling to get some “big polluter” states to accept the need to change?

The energy transition that aims to combat climate change is in any case a fact and the States, at various speeds, are looking for solutions and those that are already applicable put them into practice. However, it is clear that the energy transition to reduce our environmental footprint will come at an economic cost.

Producing energy from fossil sources remains cheaper than renewables, moreover, large investments are needed to find technologies that we do not have and which are capable of producing the same amount of energy as fossil sources. And they must also be capable of guaranteeing the same energy continuity.

It is clear to anyone that if this is the case, we should expect a decade of higher inflation than in previous decades.

How to protect yourself from inflation

Looking at inflation-linked government bonds could be a good alternative to equity investments. Inflation-linked Italian government bonds can guarantee good coverage against the loss of value of our liquidity.

For those who wish to keep a part of their financial reserve in monetary form, deposit accounts which have returned to interest-bearing are not to be disdained. If monetary assets are parked for 4 or more years the gross annual interest rate is attractive.

Commodities can also help ensure a good hedge against inflation. Beware of ETCs (exchange traded commodities) created to passively replicate the price of a precious metal or agricultural raw materials. This derivative instrument does not always follow the price of the raw material to which it is linked.

Furthermore, among the raw materials of greatest interest in the coming years are those linked to the energy transition: cobalt; platinum; Rare lands; lithium.

How will interest rates go?

Some analysts say that starting from the second half of 2023, central banks will be “less hawkish”. The president of the US Fed, Jerome Powell, has already hinted that the next interest rate hikes will be less aggressive, ranging from increases of 75 basis points to increases of 50 basis points.

Interest rates will not fall in 2023, they will continue to increase at least in the first quarter and then remain unchanged where they are.

Quantitative tightening, the opposite of quantitative easing, will also continue. We have entered a phase in which central banks will keep interest rates high, forced by inflation not inclined to let itself be tamed.

For more information contact us