Clues currently being seen globally could be interpreted as pointers to an impending rebound in the market.
Firstly, there is growing optimism that the Chinese economy has passed its most challenging period, and the economy will be able to show an overall improvement in 2023.
China started lifting anti-virus controls in early December after its stringent zero-Covid strategy had virtually choked the businesses. According to National Health Commission, the peak of the latest infection wave appeared to have passed based on the decline in the number of patients visiting fever clinics. China’s reopening could provide a much-needed and timely boost to the global markets.
It is widely expected that commodity price will surge again after China moves past its worst covid wave and economic activity picks up. Recent trend is quite reflective with price of some commodities like iron ore and a few others having started to move upward already. Optimism for a pickup in demand have also driven oil prices sharply higher to one-week peaks.
Morgan Stanley recently raised its outlook for China’s economy with forecast for its gross domestic product in 2023 to be 5.4% from earlier one at 5%. It is also predicting a rebound in activity coming earlier and sharper than expected because of China’s government also prioritising its economic growth.
Secondly, most global stock markets pushed higher, ahead of U.S. consumer price data that investors had hoped, will confirm inflation being in retreat. The annual inflation rate in the U.S slowed for a sixth straight month to 6.5% in December 2022, the lowest since October 2021. Though still more than three times above the Fed’s target, it seems to have peaked at 9.1% in June 2022.
The hope is that falling inflation will reduce the need for interest rate hikes, with markets having priced better-than-even odds that the Federal Reserve will be slowing its quick pace.
Although professional investment managers anticipate headwinds ahead for the market in 2023 and a possible correction, may be shallow, they still see opportunities for patient investors. Equities typically lead the economic cycle and, therefore, we would expect to see a rebound in stock market at some point in 2023 and presenting investors with one of the best buying opportunities in a decade.
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