What is this? Look at the surprises that can hinder this year 😱

What is this? Look at the surprises that can hinder this year 

😱  A flock of black swans.

Investors are looking at a new year and it has one redeeming quality - it doesn't mirror the terrible past year of 2022.

Some Robeco forecasts 'short-term pain and long-term gains' from the possibility that this year will see a previously unimportant recession, and that investors need to wait for inflation, interest rates and US dollar strength to peak before the good times resume.

As we enter the year 2023, the Robeco Sustainable Multi-Asset Solutions team has identified 10 potential black catastrophes, and what the potential consequences might be.

The current consensus has told that stagnation but if history has told us anything, it is that nothing is ever static. So, what are the possible events - good and bad - that are likely to change the direction of this possibility:

boastful crossword clue

1 . Panic stations

Alternatively, the Fed could tire of long-term low interest rates and revise its inflation target, citing a structural break with the previous system that has been in place largely since the global financial crisis.

  "You could claim that the 2% target is very close to zero, saying that the next recession could push the economy into outright deflation," says Graham. "The result will be panic, and bonds denominated in US dollars will see negative returns for the third year in a row."

2 . Moderate Revenge:

The first is Goldilocks' Revenge - the economical porridge won't be too hot or too cold but just right. “Here, US inflation peaks without a recession, the dollar falls, and the US Federal Reserve (Fed) can rest easy but remain vigilant,” says Colin Graham, head of multi-asset strategy at Robeco.

Post-Covid fiscal expansion has slowed, slowing excess demand. The result for multi-asset investors is that high-yield bonds become very attractive with low default rate expectations."

3 . Greenwashing And now the effect of washing:

The drive to improve the environmental, social and governance (ESG) characteristics of companies has gained significant importance, and is the cornerstone of investments in Robeco. The problem is that it has also led to an increase in greenwashing, where companies and investors make unsubstantiated ESG claims, often for PR and marketing reasons.

Another growing problem is impact laundering, where companies or investors claim to have an impact on the Earth, when it is questionable to prove or even measure it.

  “We see the potential for sustainability claims to be scrutinized more aggressively by regulators, the media and investors, and as a result, large financial institutions will struggle to demonstrate their sustainability credentials across aspects of their business,” says Graham.

"Instead of focusing on improving ESG and delivering shareholder value, companies could end up selling or divesting companies that don't meet ESG standards and withdrawing from markets as regulators demand higher sustainability credentials."

4 . Deflation disaster

Even worse is the potential for deflation. While falling prices sound great, it means that consumers won't buy anything because they expect goods to get cheaper in the short term, leading to a complete recession.

  “Here, if deflation has more hits than inflation according to news stream data from Wall Street and Main Street, that means central banks are driving the economy with a rear-view mirror, causing a major crash,” says Graham.

5 . Give peace a chance:

But it's not all bad news. Much of the consensus opinion assumes that the war in Ukraine which caused so much volatility in markets in 2022 and sparked major inflation across the world will continue. If peace breaks out, a more welcome disruption would occur.

“We could see a peace dividend in which Ukraine secures its borders with European ‘aid’ and the flow of wheat, oil and gas resumes, ending the bottlenecks,” Graham says. “Other countries would then relax their travel and trade restrictions, allowing inflation to fall and supply chains to re-shore faster. There would be an energy costs windfall for global economies, especially in Europe.”

6 . Risk rewards:

One of the lesser-known issues concerns risk appetite, whereby multi-asset investors are asked to decide what level of risk they can take. These risk profile funds are usually described as "prudent" - i.e. low risk, with an emphasis on safer government bonds; "balanced" funds that offer a more blend of bonds and stocks; Or "aggressive" funds that might be allocated to riskier stocks.

7. Anti-social media

Social media is another battleground, albeit one whose participants are armed with words rather than weapons. Tougher regulation against the tech giants that has fueled growth stocks could benefit value stocks instead.

  "We could see another backlash against all social media and more regulation on big tech platforms and social media as data protection issues come to the fore again," says Graham. "This result could be a change in stock market leadership - value companies that have capital discipline and high-quality earnings will be more rewarded on a proportional basis."

8 . Trouble ordering cart

Truss' short presidency and the disastrous mini-balancing that forced the Bank of England to take emergency measures to protect the pension industry showed just how fragile some financial systems can be.

  “In this scenario, private assets see liquidity drained, liability driven investing (LDI) structures are called into question, and there is increased scrutiny of banks in the wake of the cryptocurrency crash,” says Graham. "This would reveal investments that were only funded because the cash was 'free' at the time."

9 . Change the shock system

Then there is the possibility of a “sudden regime change,” as we witnessed when the UK went through three prime ministers in 2022. “This is the first year in this century without an election in a G7 country,” says Graham.

“However, we could see a significant shift in policy with the overthrow of the 'major' regime, as we saw with Boris Johnson and then Liz Truss a month later, which led to huge spikes in volatility.”

10. Net zero bullish

Finally, the commitment to transition to a net-zero economy could be a surprising upside. “There can be no climate backsliding: the evidence about climate change continues to mount, and COP 27 has highlighted that political will is key to shaping the balance between climate ambition and implementation,” says Graham.

In the long term, achieving energy security means investing more in green technologies and climate solutions to bridge the gap between ambition and implementation. We could see the creation of a multinational 'Super Fund' to facilitate a net zero transition, with the support of several governments."

We cannot be sure of what we said, but:

"Nobody has that tricky crystal ball that can provide perfect insight into events that affect market returns, and even if we did, recent history shows that investors can still infer the wrong market reaction."

“At Robeco, the Multi-Asset Sustainable Solutions team is preparing for another turbulent year and plans to invest with a contrarian mindset, which added value in 2022. We also firmly believe that the climate battle and the transition to sustainability will accelerate.”

Conclusion : 

At the end of this important article, we inform you that it has been discussed here about the expectations that may occur this year, the perspective of investors and owners of capital, and what the current consensus has told us about this stagnation and the evidence of bragging crosswords, including “panic stations, moderate revenge, greenwashing, and now the effect of washing and deflation disaster And Give peace a chance, Risk rewards, Anti-social media, and "Thank you for your kind reading of this interesting article, and I hope you liked it, and thank you for your presence."