Over the last two months we have been active with fund manager meetings – gathering opinions from both the fund managers we work with and other external managers. We were able to get a market update from these meetings, including trends, past performance and the trajectory of the global stock market.

The general consensus is as follows: 2023 will be quite a tough year, particularly in the UK.

So, what does this mean for you and your investments? Read on to find out more.

Looking back on the past two years

2021 ended on an absolute high, with everything looking set fair in terms of stock market growth and fund performance. However, several unforeseen events emerged in 2022 that completely rocked the boat. 

The first was rising tensions between Russia and Ukraine, which eventually escalated into a full-blown war. Given Ukraine’s reputation as Europe’s “breadbasket,” this conflict severely impacted wheat production, leading to widespread food shortages. 

Consequently, the shortage started to affect energy supplies, resulting in a substantial surge in energy prices. In response to these developments, central banks worldwide were compelled to respond (albeit belatedly) by raising interest rates more swiftly in an attempt to curb inflation.

The second event was the new budget from Kwasi Kwarteng and Liz Truss, which was a disaster for the stock market. With the new budget, government borrowing costs soared overnight from four per cent to six per cent. In a bid to stabilise the market and halt a run on pension funds, the Bank of England had to purchase over £19 billion of UK government bonds.

Essentially, this was one of the biggest falls in the market last year as confidence in the economy, government and the Bank of England all plummeted.

Where does the global market stand in 2023?

As we mentioned earlier, the general consensus among fund managers is that 2023 will be tough, particularly in the UK. At the moment they estimate that the stock market won’t experience a major recovery this year, but they’re hopeful that it will at least remain flat.  

However, we do anticipate that 2023 will bring decent incomes, particularly with respect to fixed interest funds. At present, the fixed interest funds that we’re working with are producing between a six and eight per cent yield. This means that even if the UK experiences another hike in interest rates, the yield will hold up well.

Blue-chip shares

A year ago, we changed our clients’ portfolios, moving money out of the US and into the big blue-chip shares in the UK. Looking back, the decision to move into this defensive position was a timely one as it protected our clients amid the storm. At the end of the day, the blue-chip shares were the only ones to have gone up significantly last year.

The primary reason for its impressive performance can be linked to the FTSE 100 index (an average of the share prices of the 100 largest companies on the London Stock Exchange). The FTSE 100 is dominated by oil and gas, minerals and mining, and the banking sector – all of which have made billions from the war in Ukraine. 

Ultimately, as energy prices soared (in response to the war), banks were forced to increase interest rates for borrowers. However, the interest rates for depositors aren’t as high, thereby leading to extra margins.

What we’re doing to protect investors

At Applewood Independent, we’re committed to safeguarding our clients’ investments and helping them make a positive return on their portfolios. Currently, we believe that the banking crisis in the US isn’t over by a long shot. This may have a negative effect on the economy and so, we will continue to invest less in the US until this changes. 

At the moment we’re interested in the big blue-chip shares that had an incredible performance last year. We’ll also be channelling our focus towards fixed-interest funds as we don’t anticipate any capital erosion with income reinvested. 

Looking ahead to 2024

The Chancellor has predicted that inflation will be down to 2.9 per cent by the end of the year. However, most fund managers and financial advisers remain sceptical about this prediction. We believe that it’s going to be even stickier due to the hike in food prices and salaries. Our prediction is that inflation will probably drop to between five and six per cent by the end of 2023.

But will this change by next year? 

Whilst it’s still too early to make a concrete estimate, in our opinion, 2024 will be an altogether better year. Inflation will likely go down to three per cent, leading to a reduction in interest rates (which is always good news for stock markets)!

If you’d like to hear more about the global stock market and the outlook for this year, why not listen to the latest episode of our podcast, A Dab Of Investment?

And if you’d welcome our input, expertise and experience, please get in touch by emailing me at david@applewoodindependent.co.uk.

The views expressed in this article are those of the author and do not constitute financial advice. Applewood Independent Ltd is authorised and regulated by the Financial Conduct Authority. For financial advice designed for you and your specific circumstances, please contact the author using the contact details provided in this article or, alternatively, contact the Applewood Independent Ltd office on 01270 626555.

The value of your investment can go down as well as up, and you may not get back the full amount invested.

Past performance is not a guide to future performance.