Current stock market outlook – March 2023

March 7, 2023

“Impulses from China”

What is currently driving the financial markets?

While January was still dominated by “disinflation” with correspondingly friendly financial markets, February was rather directionless. On the one hand, we saw a lot of positive economic data, but on the other hand, this suggests a trend towards higher inflation and correspondingly more restrictive central bank policies with higher interest rates. This is the area of tension in which the markets are currently operating and the pendulum is swinging back and forth. In terms of economic data, it is worth noting that a much-noticed indicator – the purchasing managers’ indices, which are regarded as a precursor to a country’s economic development – paints an optimistic picture: The latest publications on this surprised positively in many countries.China in particular surprised with a very strong rise in the purchasing managers’ index and this signals robust growth for the Chinese economy. The leadership in Beijing has set itself a growth target of 5% of gross domestic product GDP for this year. What at first glance looks like a low figure for a country like China – and at a time when economic activity is picking up strongly following the lifting of the coronavirus lockdowns – can also be viewed positively. An overheating of the Chinese economy would pose a potential risk to inflation worldwide. China is the world’s largest consumer in many areas, particularly in the commodities sector. A very strong increase in demand would inevitably lead to a sharp rise in prices, which in turn would keep inflation high worldwide. Finally, China also faces other challenges. In particular, the ageing population is an issue that will continue for some time to come. In the short term, however, we can be optimistic about the development of the world’s second-largest economy, with correspondingly positive effects for the global economy.
A look at the world’s largest economy, the USA, also shows that the economy is very robust in many areas despite the highly restrictive measures taken by the US Federal Reserve. A strong labor market and rising retail sales are particularly noteworthy.

What’s next for the financial markets?

The peak of inflation is now behind us, which is good news for the time being. The same applies to a large number of economic indicators. The tension between the joy of positive economic data and the fear of further restrictive measures by central banks is likely to continue. Overall, we remain cautiously optimistic about further developments in 2023.
In the short term, however, the markets are likely to be volatile, as there are a host of important events coming up in the next few days, including a speech by the Chairman of the US Federal Reserve and the publication of labour market data and inflation figures for February. What is clearly positive compared to last year, however, is that the actions of the central banks appear to have become much more predictable. The potential for particularly negative surprises is comparatively lower.

How do we position ourselves as an active asset manager?

With our selective and generally defensive orientation, we are still well positioned, but with the necessary flexibility to adjust as soon as the interest rate situation changes. On the equity side, we prefer sectors with companies with high pricing power, such as the healthcare sector. Such stocks also offer opportunities in a challenging market environment. However, financial stocks can also continue to benefit in an environment of higher interest rates and are also represented in our portfolios. Gold as a real asset also represents a stable component and we use currency hedging in our portfolios. In the fixed-income segment, we invest exclusively in high-quality bonds and also hedge the currency risk.

What always applies: discipline and patience are among the most important success factors when investing. Only those who invest for the long term will also benefit from the long-term upward trend. The latest article by Mark Stock is worth reading: Investing money with your butt.

Point Capital Group
7. March 2023