After a difficult year in 2022, Swiss private bank Lombard Odier presents its 2023 macroeconomic outlook and top ten investment convictions, outlining new risks and opportunities in financial markets as the economic cycle progresses.

After a difficult economic environinment in 2022, Samy Chaar, chief economist at Lombard Odier, believes that challenges will continue in 2023, but they are already becoming less intractable. 

Outlining the challenges at a webinar this week, Chaar highlighted the soaring inflation in the US. He thinks that the US Federal Reserve is on the right track to see lower inflation in 2023, due to its restrictive monetary policy and interest rate hikes; it should reach about 3 per cent towards the end of 2023. (The Fed hiked rates 50 basis points on Wednesday, followed by the Bank of England and Swiss National Bank.)

The second challenge concerns Europe and its energy crisis. Nevertheless, Europe has been taking the right actions to wean itself off its reliance on cheap Russian gas. Chaar thinks that the worst-case scenario this winter is likely to be averted.

Thirdly, China needs to ease its zero-Covid policy and re-open its markets in order to reach the 4 per cent growth it seeks in 2023, Chaar said. (Beijing has taken steps to ease the most severe of its policies in recent weeks, seeking to alleviate the economic and social harm the restrictions have caused.)

Investment opportunities   
Stéphane Monier, chief investment officer at Lombard Odier, is more optimistic about investment opportunities in 2023 after a challenging year in 2022. Nevertheless, he advises clients to remain cautious on equities. 

He said that fixed income had performed well in the second half of 2022, whilst equities saw negative returns. He prefers investment grade bonds and government bonds over high yielding ones. 

The firm is overweight in fixed income and cash, underweight in equities apart from Chinese equities and overweight in alternatives, favouring hedge funds. 

Monier considers including alternatives in portfolios for diversification, saying that it’s not just about bonds and equities. 

He believes that currencies offer a good diversification opportunity. The firm is overweight in the dollar, but he believes the Japanese Yen will present opportunities in 2023, as the dollar starts to weaken.

2023 will be a year of two phases, Monier continued, requiring different investment approaches. In the second half of 2023, gold’s appeal will increase, he said, with a weaker US dollar and the re-opening of China. 

High yield credit will also become increasingly attractive and equities will present a buying opportunity. He favours emerging market equity and emerging market debt, in local currency. Monier also believes that India presents investors with a good long-term investment opportunity.