FERI Outlook 2023: Investment markets in search of orientation

The recent shocks in the banking sector confirm the extent to which systemic risks have accumulated in the financial system as a result of the excessive monetary policy of previous years. These may now materialize suddenly and unexpectedly in the wake of very rapid monetary tightening. "The still unsettled situation on the capital markets is currently presenting investors with particular challenges," said Marcel Renné, Chairman of the Management Board of FERI AG at the FERI Spring Conference, which focused on the outlook for the economy and investment markets in 2023.

Alternative investments indispensable

In view of the increased uncertainty in the markets, investors currently need to once again examine their investment strategy very closely and be able to react quickly and flexibly to changes at any time, he said. "Against this backdrop, a multi-asset approach to unlocking the earnings opportunities of this volatile market environment with simultaneous active risk management is indispensable" said Dr. Marcel Lähn, member of the Management Board of FERI AG. Currently, he said, there is much to be said for cautious positioning in equities with a focus on more defensive stocks. "Interest rate hikes by central banks are also creating opportunities in the bond market again, where we are focusing on the investment grade sector in particular," Lähn said. In resilient portfolios, alternative investments such as private markets, hedge funds and also volatility strategies are essential in addition to traditional asset classes, he said.

The central banks' dilemma

Further developments on the capital markets depend heavily on whether central banks succeed in resolving the contradiction between fighting inflation and stabilizing the financial sector. "On the one hand, it is becoming increasingly clear that bringing down inflation requires a sustained restrictive monetary policy. On the other hand, this poses increasing risks for the banking sector, which would have to be countered with a renewed expansion of liquidity if the worst came to the worst. And that would be in tension with the goal of fighting inflation," said Axel D. Angermann, chief economist of the FERI Group. It is unlikely that the inflation mark of 2 percent can be reached without a profit recession, he said. In the course of the year, FERI therefore expects recession risks to increase, especially in the United States. After the expectation of a soft landing at the beginning of the year had dominated the markets, these had recently very quickly tipped over into a stagflation scenario. These abrupt changes in direction, depending on the current data situation, are a pattern that will be repeated more frequently in the further course of the year. Longer-term clear trends are not discernible on either the equity or the bond markets.

Focus on selected investment strategies

As a guest speaker at the FERI Spring Conference, Ralph Aerni, Head of Client Solutions EMEA at Hamilton Lane, explained how professional investors and asset owners can successfully invest in private equity with an unlimited term, so-called "evergreen" funds. Michael A. Weidner, Head of European Fixed Income at Lazard Asset Management, spoke about the comeback of bond markets and how fixed income can contribute to returns. The use of hedge funds and volatility strategies in this volatile market environment was explained by Marcus Storr, Head of Alternative Investments at FERI.