Investment Strategies
Modest Growth, Weaker Dollar And China Rebound – Pictet's 2023 Outlook

The Swiss private bank and wealth manager sets out its 2023 predictions, joining dozens of other firms in trying to work out what the markets hold in store for the next 12 months.
The dollar will weaken, economic growth will slow, China will
rebound but equities will not make up much headway, according to
a set of predictions and positioning notes from Pictet Asset
Management yesterday.
Investors should be cautious on risk assets, particularly through
the first half of the year, the Swiss firm said.
“We forecast global growth to slow to 1.7 per cent in 2023, with
stagnation in most developed economies and outright recession in
Europe. China’s economy, on the other hand, is likely to
re-accelerate as the government relaxes its zero-Covid policy.
Overall, growth is likely to pick up again following the first
quarter,” strategists Luca Paolini and Arun Sai said in their
outline of 2023.
“At the same time, we expect inflation to slow sharply, from a
global peak of 8.3 per cent to 3.5 per cent by the end of 2023.
That will be enough for major central banks to end their
tightening cycles, led by the US Federal Reserve, but not enough
for them to start cutting rates. We see Fed funds peaking at 4.75
per cent, with an end to its quantitative tightening programme in
the third quarter of the year. We see the European Central Bank
taking over as the major source of policy tightening as the Fed’s
slows,” they continued.
"The massive liquidity drain will weigh on risk assets. We
estimate developed market central bank balance sheets to contract
by more than $2 trillion,” they said.
Pictet predicts that global equities’ returns will be limited to
5 per cent for 2023, barely above the 3 per cent it forecasts for
global government bonds.
Of all stocks, Pictet predicts that US equities are set to show
the best performance. This is thanks to relatively attractive
valuations, resilient domestic growth and the fact that the Fed
is set to be the first of its peers to reach the end of its
hiking cycle, it said.
The firm expects that the dollar is likely to edge back from its
multi-decade highs and this should help support emerging markets'
equities, as should a widening growth differential between
emerging and developing economies.
“We think the macro backdrop will benefit US Treasury bonds,
investment grade corporate bonds and emerging market local debt.
Gold should be the most attractive of alternative assets, while
the year’s big losers are set to be Japanese stocks, the dollar,
industrial stocks and European bonds,” the firm added.