Australian Shares, International Shares

Share valuations not the main 2023 issue

Share valuations

Share markets will still face headwinds in 2023 from a different perspective based upon decisions central banks will make regarding interest rates.

A financial services economist has predicted share markets will still face considerable challenges but not from a valuations perspective as was seen in 2022.

“In 2022 it was share valuations that took a hit as interest rates went up but in 2023 the challenge will be that earnings could now take the hit as a result of those increases in interest rates,” BetaShares chief economist David Bassanese forecast.

With reference to the performance of markets in general he identified the US Federal Reserve Bank’s actions regarding interest rates as being the critical factor this year particularly in regard to that country’s employment levels.

“We’ve still got central banks looking to raise interest rates [but] I think we are getting to the tail end of the interest rate increases. We’re also seeing inflation peaking after having risen through much of [last] year,” he said.

“So, inflation is on the downside but again the key issue is going to be whether or not, in the US in particular, wages growth can come down given the very tight labour market because unless wages growth does slow down by a lot it’s going to be hard to get overall US inflation down.

“The central bank there is still going to be keen on slowing the economy [and] potentially getting the employment rate up.”

However, he suggested share returns will continue to enjoy a rebound the beginning of which was witnessed toward the end of last year. To this end he said, while US shares were down by just over 10 per cent in the last weeks of 2022, they had experienced a more significant fall throughout the year.

According to Bassanese, fixed income assets are likely to enjoy better performance in 2023 as well.

“On the view that we are on the tail end of the central bank interest rate increases, and growth is going to slow next year, [bonds] are probably going to generate better returns than we saw in 2022,” he said.


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