Markets Update January 2023 - Global stock markets with different trends

The financial markets got off to a surprisingly positive start to the year, with European stock exchanges in particular posting significant gains. Although the European economy remains fragile, the likelihood of a recession in the coming months has fallen significantly and easing energy prices have improved consumer sentiment. In addition, mild weather has virtually ruled out a gas shortage this winter. The massive Corona wave in China has also contributed to the outperformance of European equities. At first glance, this seems contradictory, as the Chinese economy, which also plays a key role for the markets in Europe, is currently being significantly slowed down. However, the financial markets are already speculating on a noticeable recovery in China once the current corona wave is over. Beijing's determined fight against the acute real estate crisis has also boosted investor confidence in Chinese assets. Emerging market equities have also recently benefited from the expectation of a positive turnaround in China. The emerging markets are also being supported by the turnaround in the US dollar. This is because the increasing weakness of the US dollar is improving financing conditions for emerging markets.

US companies with weak earnings outlook

Developments on the US stock markets have recently been less friendly than in Europe. There, macro data point to clear recession risks. It is true that inflationary pressure in the USA has eased, which is why the markets expect the US Federal Reserve to take a less harsh course in tightening interest rates. But the easing of interest rate pressure alone is not enough for a sustained upward movement on the stock markets. Constructive fundamental data are crucial for this, and these are not in evidence at present. With disinflation now extensively priced into stock prices, the weak outlook for U.S. corporate earnings is now likely to come more into focus for investors. Against this backdrop, professional investors should underweight U.S. equities for now and wait for valuation levels that adequately reflect fundamental risks. European and emerging market equities, while overbought in the short term, offer better prospects. In these segments, professional investors can take advantage of the temporary periods of weakness to make additional purchases.