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Outlook

Given the above, the outlook remains
incredibly mixed.

China reopening is a big positive but will
likely need stimulus to sustain it, with
question marks surrounding the health of
China’s main trading partners (ie. the US
and Europe). A stressed banking system
is never good, but it might tighten financial
conditions enough so that central banks
don’t need to go much higher from here on
the rates front. Inflation appears to have
peaked in most jurisdictions but the path
lower will be key - inflation falling too
sharply risks an uncomfortable recession
whilst inflation falling too slowly will force
central banks to continue raising rates or
to keep conditions tight for some time. Bad
debts and corporate bankruptcies are
rising off a very low base but remain low
for now. Labour markets remain very tight,
continuing upward pressure on wages
(additional consumer firepower to spend)
and costs for businesses (good for those
with pricing power, bad for those without).
Supply chains have improved
considerably alleviating some inflationary
pressures, but trends regarding
decarbonisation and de-globalisation are
inflationary forces that central banks have
only blunt tools to deal with.
All in all, plenty for markets to contend
with this year. A mixed outlook isn’t
necessarily bad for markets, but it does
mean investment selection and
diversification will be critical. We see both
risks and opportunities – risks mitigated by
owning high quality assets; opportunities
taken advantage of through patience and
remaining calm.

Chris Lioutas
PSK Private Wealth -
Chief Investment Officer