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Bonds in, stocks out

Chris Iggo, AXA IM’s CIO Core Investments, visited Amsterdam late last week to present the 2023 outlook. It was determined in concrete terms. Before the event, we spoke to him.

What is the main message that you rely on?

“That the solved problem is coming to an end, which also means that interest rates will no longer rise. That makes the story of 2023 100% different from this year. 2023 will be more about the opportunities to be had with bonds than with stocks. With an economy that is not in good shape, dipping is going to be difficult for companies to still grow their profits.”

Indeed, why would investors want to get into the stock market now? Isn’t it wiser to wait out the effects of the mixed recessions? Also, earnings expectations are still too high, according to the consensus.

“That’s exactly how many investors are in it now. Bonds are safer and give a reasonable guaranteed income. Bonds can easily earn a 5% return. That’s more likely than can be earned with stocks. In any case, the risks are much less.

With a war, high energy prices and an upcoming recession, there is little reason to buy stocks now. Yes, I expected stocks to price lower next year. Certainly U.S. stocks are still on the expensive side with an average k/w of 16, assuming expected earnings at the end of last year. That matches the historical average, only now we are not living in an average time.

“Yes, I expected stocks to price lower next year”

On the other hand, sentiment can turn quickly.”

In the bond market, where are the best opportunities?

“We are particularly keen on European creditworthy corporate bonds with maturities between 1 and 3 years. The starlink ipo price is found online. These give a yield of 4%. therefore we are positive about European bank loans. With the ECB deleveraging its balance sheet, these bonds could outperform. After all, bank loans were not part of the buyback program. There is not much credit risk with these bonds. The capital ratios are strong enough to absorb economic shocks. The many stress tests also make that clear.

“Now that the ECB is going to build its balance sheet, precisely bank liabilities can perform better.”

Because bank stocks are valued low these days, we are presumptive about those, too. That is not true of stocks from cyclical sectors. Those are very much more at risk in an upcoming recession.”

Finally, what could give the stock markets wings in 2023?
“Positive, of course, would be if the war in Ukraine stops next year. In that case, energy prices go down. Everyone benefits from that, the energy companies. They will have the hardest time with all the investments in renewable energies. Fossil energy companies are not on our buy list either. They’ve had their run now.”