A senior economist has predicted investment returns will be stronger in 2023, but significant levels of volatility can be expected due to continued fears over the possibility of recessionary times.
“Easing inflation pressures, central banks moving to get off the brakes, economic growth proving stronger than feared and improved valuations should make for better returns in 2023,” AMP head of investment strategy and chief economist Shane Oliver forecast.
With regard to Australian equities, Oliver’s outlook is positive mainly due to an improvement in China’s economy.
“Australian shares are likely to outperform again, helped by stronger economic growth than in other developed countries and ultimately stronger growth in China supporting commodity prices and as investors continue to like the grossed-up dividend yield of around 5.5 per cent. Expect the ASX 200 to end 2023 at around 7600,” he noted.
According to Oliver, the performance of the property market will not be strong for the first three quarters of the coming 12 months, but should improve after that nine-month period.
“Australian home prices are likely to fall further as rate hikes continue to impact, resulting in a top-to-bottom fall of 15 to 20 per cent, but with prices expected to bottom around the September quarter, ahead of gains late in the year as the RBA (Reserve Bank of Australia) moves toward rate cuts,” he said.
Further, he suggested returns would be slower for unlisted commercial property and infrastructure as a result of recent higher bond yields and weaker share market performance.
He nominated several key issues investors should continue to monitor in 2023, the first of which is inflation.
“If it continues to rise, central banks will tighten more than we are allowing for risking deep recession,” he said.
He also recommended investors keep an eye on Australian home prices.
“A sharper-than-expected fall as fixed rates reset and unemployment rises could cause financial stability issues,” he warned.
Geopolitical variables in the United States, China and Ukraine were also identified as issues for investors to observe in 2023.
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