The decade's most triggering comedy
The investment bank found that 65% of institutions see stagflation, which refers to economic stagnation combined with inflationary pressures, as a more significant threat than a recession. Rising price levels are still seen as the top overall risk for the year ahead; 69% of investors identified inflation as the greatest threat to their portfolios.
“The market scenario projected for 2023 may look vastly different from what institutions have experienced in the past decade, but few anticipate it leading to significant changes in allocation strategy,” the survey analysis explained. “While there is little planned in the way of large allocation shifts, many anticipate significant adjustments within asset classes to position portfolios for the year ahead.”
Despite the risk of stagflation, recession, and other economic calamities, investors retain a remarkably bullish outlook for most asset classes. A majority believe private equity, the bond and stock markets, and private debt hold upside potential as interest rates rise, while more significant majorities are bearish on both residential and commercial real estate, as well as cryptocurrencies.
The companies, representing more than $20 trillion in combined assets under management, believe that war poses the greatest economic threat for next year. While 57% of overall respondents listed conflict as an issue, roughly 68% of European respondents listed war as the most salient threat.
JPMorgan Chase CEO Jamie Dimon likewise pointed to geopolitical turmoil as an important consideration for economic actors during a recent interview. Members of the G7 and the European Union coordinated this week to limit the sale price of Russian seaborne oil exports at $60 per barrel worldwide; many European nations have witnessed soaring energy prices as a result of nixed Russian natural gas shipments.
Strife between the United States and China is also worrying investors; 65% believe Chinese geopolitical ambitions will cause a bifurcation of the global economy between the two superpowers, while 74% believe such ambitions lower the appeal of investing in the nation.
“China is chief among emerging market concerns. Two-thirds of institutions globally think emerging market investments are overly dependent on China,” the Natixis analysis continued. “In an era in which China is flexing its political influence, institutions worry about how it will impact investments.”
Beyond risks induced by international conflict, respondents identified central bank policy errors as the second-largest threat. Institutions such as the Federal Reserve Bank of the United States and the Bank of England have been reversing loose monetary policy regimes established in the wake of the lockdown-induced recession. Federal Reserve officials have raised rates by three-quarters of a percentage point on four consecutive occasions, leading to volatility in the American housing market and raising the cost of borrowing money for consumers and businesses.
Roughly 53% of investors are examining trends related to consumer spending as a primary indicator of whether economic “growth is back on track.” Dimon also predicted that savings accumulated during the recession will deplete by the middle of next year. Beyond consumer spending, 49% of investors believe that business spending tops the list of growth indicators, while 47% and 43% respectively said the same about employment and productivity.