The economic report lists 10 expectations that investors may face through 2023, including a peak dollar, insufficient technology, echo bubbles and more.
A Financial Times report said that in 2022, big businessmen, companies, currencies and countries that prospered thanks to easy money will weaken, give way to new winners, some things will improve, digital currencies and time for stupidity. TV programs will pass and the most prominent management cycle will shape the trends of the year 2023.
1- Dollar peak
The dollar has been the world’s dominant currency for 102 years, eight years longer than the average of its five 15th-century predecessors, including the pound sterling.
However, the prevailing assumption remains that in the absence of serious challengers, the dollar can maintain its dominance now and for the foreseeable future, as the dollar’s long base has been far from consistently rising and instead rises and falls over long periods.
The report indicated that the dollar had experienced two major rallies, one in the late 1970s and another in the mid-1990s (about 7 years), but by October it had reached an 11-year high.
The report confirmed that the dollar is about 25% overvalued, and such overvaluation points to the downside, as the dollar started to fall in October and has turned around at the same point – 20% above the long-term trend. showed an average decrease many times in the past years.
And he said he expects the economy to grow more slowly this year and interest rates to rise less in America than in other major countries.These signs point to a further weakening of the dollar and a weakening of Americans’ purchasing power. everyone.
2- Rise (ROW)
The ROW, or “rest of the world,” has lived in the shadow of American financial markets for years, and many believe that American dominance will continue.
America has been the world’s best-performing market for the past century, and it’s an investment favorite. Since World War II, the US stock market has tended to outperform one decade (ROW) and then underperform the next. It was the 1950s, 1970s, and the first decade of the 21st century. Huge deals to invest outside of America.
In the boom of the 2000s, the value of the US stock market expanded, reaching 60% of the global total in 2021, 15% above the long-term average.
As U.S. stock valuations near post-WWII highs relative to the letter ROW, investors wedded to U.S. companies think America will do more than just hold on.
It’s not a safe assumption, especially now that the era of easy money is over. One estimate is that half of the rise in US corporate profitability over the past decade can be attributed to low interest costs. True, there was easy money. Increasing revenues in most countries has become an American specialty, but financial engineering.
3- Technology
Big deals for the American market coincide with the tech boom. In the 1990s, IBM in software and Cisco in Internet hardware made American companies top 10 global by market capitalization, but the companies in the top 10 remained the same for the next decade. continues and the technology is particularly vulnerable to disruption.
The 2010s saw the rise of leading technology companies in mobile internet services (shopping, search, social media), but this model is showing signs of exhaustion.
The report noted that 2 of the 7 technology companies in the top 10 global companies in 2020 were from China (Alibaba and Tencent), and the third one fell out of the top 20 (Meta).
Other US giants are also falling in value, although they are still in the top 10.
4- Money and TV
Unlimited access to cheap capital helped fuel what is widely regarded as the “Golden Age of Television.”
Global spending by major streaming services on new content has risen from $90 billion to $140 billion in the past 5 years, and the number of new shows being written for TV has increased, but as the hottest trends of the age of easy money. , television broke The golden age distorted itself and produced more, less quality.
The average IMDb rating for Netflix TV shows went from 8.5 out of 10 in mid-2010 to 6.7 in 2022.
Audiences will feel less lost next year. In recent months, major streaming services have focused on making a profit. Instead of spending whatever it takes to get new subscribers, they want fewer new shows and set higher standards for new shows. shows and scripts.
5- Echo bubbles
Bubbles should not burst at once; Drops are often marked by large booms – “echo bubbles”. In early 2001, the Nasdaq was down nearly 70%, but would have two false rallies before the year was out.
Echo bubbles sounded great as tech stocks rose 45%, but it was a mathematical illusion. When that bottomed out, the tech had to rise 250% to regain its previous peak, and it never came close. In 2001, the technology finally bottomed out the following year and remained sluggish for the rest of the decade.
Bubbles have popped up in broad markets during the pandemic, in small-cap stocks, clean energy stocks including Tesla, cryptocurrencies including Bitcoin and Spacs or SPACs, and tech stocks with no earnings but big names (Spotify-Lyft), which have already 50 -75% down, but the story is not over yet, the fortunes of cryptocurrency kings and Elon Musk are still spinning wildly.
The psychology behind bubbles is strong. People refuse to give up easily on the idea that inspired the bubble. They take the dips and don’t give up until their faith is reduced again and again.
2023 is likely to see more echo bubbles, including some of the most exciting topics of the last decade: technology from big companies in America and China, but again, don’t be fooled, the next winners will appear elsewhere.
6- Return of Japan
The image of a “rising Japan”, an unstoppable superpower, was so rooted in the global imagination that as early as 1992, US presidential candidate Paul Tsongas could say that “the cold war is over, Japan has won”.
Today, Japan is only old and bad debt, not a superpower, and global investors hardly think of Japan.
Quietly, Japan is getting better Labor force growth, which was negative in Japan 3 decades ago, is about to turn negative in the developed world. Measured as a share of the economy, private debt is higher than average in other developed countries. economies compared to Japan.
Japanese households and firms have reduced their debt burdens for much of the past decade, and they will be less stressed in a tighter monetary period than others think.
Profit margins have steadily increased, productivity-adjusted labor costs in Japan are now lower than in China, and Japan may not be back in the sense of a rising superpower, but it is poised relatively well for 2023.
7- Everywhere except China
Coupled with rising labor costs as Beijing moves away from opening up to state control, a number of foreign firms looking to outsource production are now looking “anywhere but China.”
There is talk of bringing industrialization back “home” in America or moving next door to Mexico, but so far the big winners are with China: Vietnam, Taiwan, India and South Korea.
More than half of US companies in China say their first choice for relocation would be other countries in Asia; less than a quarter say they have returned home; Fewer than a fifth say Mexico or Canada make those decisions based on all kinds of risk and cost, but wages are Asia’s central advantage outside of China.
Average monthly factory wages in Vietnam and India are less than $300, about half of China’s level, less than a quarter of Mexico’s, and a fraction of the $4,200 monthly wage in the U.S. Not surprisingly, American companies are not only looking abroad, they’re still looking abroad. in China.
8- The return of faith
Other countries targeted for market sales in 2022 included Brazil, Chile, Colombia, Ghana, Pakistan, Hungary and even the UK in November, amid a sell-off widely attributed to generous spending plans. What they share: huge foreign and government deficits and unconventional leaders threaten to make the deficit worse.
The sell-off hit left-wing populists like Brazilian President Lula, and conservatives like out-of-work British Prime Minister Liz Truss all had to retreat.
Markets become less forgiving as money shrinks. Compared to about 8 countries targeted last year, markets have changed dramatically in the 2000s for only a few countries, notably Greece, Turkey and Argentina.
Since then, Greece has reduced its deficit and debt and returned to being a welcome borrower in global markets, but Turkey and Argentina have not. Expect more of these fights in 2023.
9- Political relief
Those who don’t will shape the political mood in 2023. For the first time this century, none of the G-7 countries hold national elections. The other G-20 countries don’t have much of an electoral struggle either, and these days elections are more about sowing discord than unity, so take a break. You’ll be back on vacation.
In election years, developed markets tend to lag behind their peers, but emerging markets tend to gain, perhaps in the hope that new leaders will have more of an impact on economic growth in young nations, which could shine a brighter light with a few big elections. on elections. the smallest.
Two full of potential are chosen. In Turkey, President Recep Tayyip Erdogan is facing a serious problem after nearly 20 years in power. A classic example of a leader who started strong but lost his way. Erdogan is now perhaps the most unconventional leader in the world in terms of finances. and he is a constant threat to the future of his nation.
President Muhammadu Buhari has made life worse in Nigeria. Poverty has increased. Corruption is rampant. Now Buhari is out. Thanks to term limits, any of the four primary candidates could advance in the February election. The most interesting is Peter Obi. An outsider with plans to eliminate oil theft in Nigeria seriously.
10- Blue birds
In the late 2000s, author Nassim Nicholas Taleb popularized the term “black swan” as a contingency theory. The term became synonymous with negative shocks during the 2008 global financial crisis, and people have been looking for black swans ever since.
Now the idea of a good black swan can return as a “blue bird”. A rare, unexpected event that brings joy. Geopolitical shocks and economic gloom have persisted since 2008 and can only get worse. bring comfort.
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The forecast may bring a bluebird
1- Sudden peace in Ukraine, which immediately leads to a decrease in energy and food costs.
2- Melting ice in the cold war between America and China strengthens global trade.
3- New digital technology that increases productivity and helps prevent inflation.
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