Market Shocks to Continue into 2023

Although the supply chain crisis is coming to an end, global trade growth is set to slow significantly in 2023, from 6.1% to 1.1%. The International Monetary Fund (IMF) has recently announced that a third of the globe will fall into a recession, including South Africa. Below we take a look at the global stock outlook for this year. 

Market Outlook

In many countries, growth is expected to slow significantly in the coming year as inflation, and rising interest rates are taking a greater toll as businesses prepare for the likelihood of a global economic slowdown. Global slowdown or recession would reduce demand for South African exports.

The South African Reserve Bank is set to hike interest rates further in the first quarter of 2023, but with the hopes that the global risk will settle somewhat by the end of 2023. U.S. companies are expected to experience the weakest year of earnings growth since 2020. Some leading equity strategists forecast no earnings growth or even a decline.

For the S&P 500 index, analysts expect earnings growth of 4.7% for all of 2023, following estimated growth of around 5% for all of 2022. The benchmark index was down about 20% in 2022, falling into a bear market. In a bear market, investors will sometimes opt to speculate on price changes in stocks and indexes through CFD trading because it does not require actually owning equities and provides an opportunity to take advantage of moves in either direction. 

Source: Pixabay

As predicted, The Federal Reserve recently raised interest rates by 50 basis points, which more hikes expected this year, despite recession fears. Rising rates have particularly hurt technology and other growth stocks this year. However, the energy sector is expected to see the largest year-over-year earnings decline.

Commodities Outlook

Commodities have, of course, also been significantly impacted by the market shocks during 2022. Even though South Africa’s commodity boom was beneficial for the country’s mining companies, it took a bit out of consumer growth. Gold mine supply has been flat for a while, but there is still plenty of residual supply. However, there are pressures from the environmental, social, and corporate governance on the gold industry. South African mining company AngloGold Ashanti, for example, is aiming to limit the environmental impact of its gold mines by issuing a $250 million green bond to investors.

China has been making headlines, just recently opening its borders again. International metals markets are also being impacted by slowing demand from China. The second-largest economy in the world makes up 50% of the worldwide demand for copper, aluminium, zinc and nickel. The Chinese market has slowed dramatically over the past few years, but hopes are that with the recent policy changes, the outlook will improve significantly this year.  

Source: Pixabay

Lithium is another commodity of interest in 2023 as a crucial element of battery technology. Lithium production has not been able to keep up with the growing demand for E.V. throughout the globe. The somewhat surprising commodity set for growth is recycled scrap metal. 

Much of developed nations’ scrap metal is currently exported to emerging markets as waste. However, as it becomes a more valuable asset as a low-carbon commodity, this may change in 2023. One reason for this is that the amount of energy used to remelt waste aluminium is 90% of that when producing the primary metal. 

Even though the market outlook is not particularly optimistic, many of the economic shocks, including inflation, the volatile geo-political situation and the lagging Chinese economy, have already been built into prices. Despite recession fears, there are still market opportunities. The labour market is predicted to remain strong, and the US is expected to bounce back faster than other nations. 

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