War in Ukraine, energy embargo, inflation, interest rate hikes: 2022 was not a good year for the DAX. Too many disruptive factors spoiled the mood. The stock market year 2023 can only get better. But expert opinions differ.
In 2021, the DAX will increase by a double-digit percentage. The stock market only knows one direction. But in 2022 the rally came to an abrupt end. Instead of constantly rising prices, the topics of inflation and interest rate increases and thus also the volatility on the stock exchange floor are coming to the fore. At the low for the year, the leading German stock market index falls below the 12,000 mark. The trading range this year is around 4000 points. “2022 was a special stock market year,” says financial market expert Benjamin Feingold from Feingold Research. “Hardly anyone expected it and suddenly the issues of gas shortages, an oil embargo, rising energy prices and double-digit inflation rates are determining the actions of investors.”
“No one really wanted to admit the Russian war in the Ukraine beforehand,” explains the managing director of FIDUKA Depotverwaltung, Marco Herrmann. “But it was foreseeable in advance that 2022 would be a difficult year for the stock markets: prices rose significantly after the coronavirus pandemic and valuations were exhausted,” he explains. “From an investor’s point of view, the stock market year 2022 was not easy, rather one to forget.”
But Herrmann is certain: “2023 will be better, even if many questions remain unanswered: How many more interest rate increases will there be? What is inflation doing? Is China getting Corona under control? What are the prospects of an end to the Ukraine war? Also The weather is one of the major uncertainties for the stock market year 2023,” emphasizes Herrmann: “A hard winter means gas storage tanks run empty faster. A forced break in industry would then be quite possible, along with a more noticeable recession.”
“The big unknown is the recession,” predicts the managing partner at AK Vermögensverwaltung, Carsten Riehemann. “But investors shouldn’t be afraid of this, because an economic downturn also creates opportunities – for example in dividend stocks with a low volatility range, for example from the food or health sectors,” he explains. “But I can also imagine investments in ‘Big Tech’ being anti-cyclical,” Riehemann continued. As justification, he refers to the “high margins, stable business models, low debt and the already significant correction” in 2022.
“Technology as a whole could do better again in 2023. Catch-up effects are conceivable after the sometimes significant price declines in 2022,” Feingold also looks ahead confidently and advises: “Investors should pay attention to company results in order to separate the wheat from the chaff. There were positive company prospects, for example the telecom sector or the semiconductor industry.”
“Better to invest defensively in the health or food sector,” recommends FIDUKA Managing Director Herrmann. “The reason: The companies in these sectors can pass on the higher costs,” he explains, but at the same time says: “The future is traded on the stock exchange! Cyclicals, i.e. values that are dependent on the economy, could start to run in the spring. However, this is where the issue comes into play China again plays a role.”
Herrmann explains: “Are the easing of the zero-Covid policy working? The vaccination rate is low, the exit strategy is not really well thought out. That could lead to problems in the economy and also have an impact on the global economy.”
China could also become a problem for Feingold Research: “Although the government is currently relaxing the strict restrictions, the number of infections is going through the roof, it remains to be seen how Beijing will ultimately deal with it. The government can definitely choke off the economy with lockdowns don’t allow it. Either way, China is a risk factor.”
An element of uncertainty from 2022, the interest rate policy of the central banks, will calm down noticeably in 2023. This is what FIDUKA Managing Director Herrmann expects: “The US Federal Reserve will slow down its rate of interest,” he says. “We are still assuming one or two rate hikes in 2023, perhaps by 25 basis points each, so that the key interest rate will ultimately be around 5 percent,” he explains, emphasizing: “This interest rate will then remain in place until the end of 2023 – provided the US economy not slide significantly into a recession.” However, Herrmann does not expect a rate cut.
“According to the Federal Reserve, the US job market has overheated,” explains AK strategist Riehemann. He expects the US Federal Reserve to raise interest rates for the last time at the beginning of the year. “Then they will wait for inflation to fall. The target should be towards the three percent mark,” emphasizes Riehemann.
In Germany and Europe, on the other hand, inflation remains at a high level: “The inflation peak will be seen here in January or February – at probably 12 to 13 percent,” says FIDUKA Managing Director Herrmann. “This is due to the high electricity and gas prices. But inflation rates should come back from spring.”
For Feingold Research, inflation in Germany and Europe will remain at a high level in 2023. “That could fuel fears of stagflation, i.e. high inflation rates coupled with a weakening economy. This is the worst scenario for 2023 and cannot be ruled out,” says Benjamin Feingold. “But I rather expect that interest rates will calm down and that the economy will come to the fore again, so there will only be a mild recession in Europe and the USA. Nevertheless, if investors want to avoid inflation, they can get hold of shares not over!”
However, there are no new record highs at AK Depotverwaltung: “It will be difficult for shares to target new all-time highs,” says strategist Riehemann. “Bonds could become more attractive: With falling inflation rates and shrinking economic output, long-dated government bonds with good credit ratings are finally becoming interesting for investors again,” he explains. “Even short-term corporate bonds with a term of up to four years promise a good risk-reward ratio due to the sharp rise in nominal yields.”
“Bonds have become more interesting with rising interest rates,” explains FIDUKA Managing Director Marco Herrmann. “The stock market first has to generate a return of four to five percent on a corporate bond. But investors shouldn’t forget: “The DAX has a huge valuation discount. 16,000 points are quite feasible.”