The three systemic risks that await us in 2023

Adapt your asset allocation accordingly… and see you next December to reap the benefits!

The beginning of the year is an opportunity for investors to take stock of equity investments and adapt their strategy to the macroeconomic context.

If the traditional exercises of predictions on what the markets will do are more entertainment and divination than financial analysis, taking the time to assess the situation on January 1st is necessary to maximize profits and avoid losses on the market. beginning year.

Because the years follow each other but are not alike. At the beginning of 2021, it was necessary to invest in a context of a lasting pandemic and tensions on international supply chains. At the beginning of 2022, savvy investors were looking into energy issues and anticipating the shortage (of which the war in Ukraine was only a catalyst, the price of gas in Europe having started to soar in the summer of 2021).

At the start of 2023, here are the three main paradigm shifts that could affect our investments. For those who have been surprised, it will be “threats” or “risks” on the markets that justify parting with its shares in a general rescue.

Those who have anticipated them, on the other hand, will see in them a simple redistribution of the macroeconomic cards… and an opportunity for gains.

Change n°1: soon a lack of oil?

The war in Ukraine continues, and with it the economic tensions between Europe and Russia.

To tell the truth, I am, at the start of the year, much more optimistic about our gas supplies than six months ago. Our economic fabric has adapted painfully, but it has adapted.

If we should not hope for a miraculous resurrection of the companies hit hard by the rise in the price of gas, the survivors who still manage to have a profitable activity at the end of the year 2022 should continue to be able to work in 2023. Their position could even be stronger than a year ago if some of their competitors have gone bankrupt in the meantime.

Oil supply, on the other hand, will be the next crisis to be managed. In response to the introduction by the European Union, the G7 and Australia of a cap on the price of Russian black gold, the Kremlin could reduce its oil production this year.

However, Russian production (all qualities of oil combined) is nearly 10 million barrels per day (9.7 Mb/d on the consolidated figures for October 2022). Russia is OPEC+’s second largest producer by volume, and alone meets 10% of global demand.

Let’s be clear: just as we could not do without Russian gas without major effects on our economy, we cannot do without Russian oil, which is still flowing today through third countries.

If natural gas represents approximately 20% of the total energy consumed in Europe, oil represents 36%, or 1.8 times more. Any drop in availability will therefore have major effects on our GDP. As with gas in 2022, the least solvent buyers risk having to step aside in the event of a shortage, and cease all activity.

Change n°2: a liquidity crisis worthy of the subprime ?

Last month, the giant Blackstone had to cap redemption requests for its flagship real estate fund. The CEO had a good game of asserting that the share buybacks were due to “investors in financial difficulty”, the semantic sleight of hand does not lie. Mixing cause and consequence is a well-worn fallacy, and Blackstone’s emergency withdrawal cap is a problem in itself – no matter what caused it.

A few months earlier, we were witnessing a real bond crash in the United Kingdom. On September 27, British 30-year bonds (Gilt) saw their yield jump by 115 basis points in one morning. Of course, the Bank of England quickly reassured the markets by bringing out the heavy artillery… but the damage was done, and the Gilt returned to almost identical levels a few weeks later.

Evolution of the yield on British 30-year government bonds. Flash-crashes only confirm the underlying trend. Source: Marketwatch.com

The youngest analysts who have not yet experienced a major financial crisis will see epiphenomena in these two anecdotes… Those who remember past crises know that the weakest links in the economic chain by definition crack first.

Tensions on the bond market, fund managers who cannot meet demand: this is the unmistakable sign of a drying up of liquidity.

In 2023, despite inflation, money will be expensive. While it’s never a good idea to liquidate all your positions and be cash onlysaving money to be able to pick up paper at a good price could be a winning strategy in the next six months.

Change n°3: living without the ECB?

Here is another change of context that a whole generation of investors and decision-makers does not know how to tackle: the disappearance of the role of buyer of last resort for central banks.

After almost 15 years of monetary “whatever the cost”, the financial sphere has become accustomed to being able to rely on the ECB to maintain the stability – or even the continuous rise – of asset prices.

We have never ceased, in these columns, to remind you of the crucial role played by monetary largesse in the emergence of the “everything bubble”, which caused the prices of stocks, bonds and , but also real estate throughout Europe.

But this free money also acted as an anesthetic for citizens, investors, and leaders. By keeping prices rising almost perpetually and gradually lowering the cost of money, the ECB has brought out a winning strategy every time: selling volatility and increasing its debt.

Over time, economic players have come to integrate this mode of operation as a matter of course. And a whole generation of analysts, investors, and even politicians even see this as the way a normal economy works.

This is historically not the case, and 2023 could be the year of the return to classic operation.

This year, the States of the euro zone will have to borrow like never before. Debt issues should exceed €1,200 billion on the Old Continent. On the side of private players, over-indebted companies will come up against – some for the first time – the wall of refinancing and will see their bank refuse to add debt to debt. Among individuals, mortgage borrowers will see the number of refusals to file multiply, causing demand to dry up.

These growing tensions will surprise those who thought the decade 2010-2020 was the new normal. Financial schemes based on the house of cards of easy money (like the French state budget) will collapse. It’s time to go back to the investment methods of our parents. Not that they were endowed with a wisdom that we lack, but because the year 2023 could, financially speaking, look more like the years of the past century than the 2000s.

If you anticipate these three factors, you will maximize your chances of getting through 2023 without a hitch.

Simply adapt your asset allocation accordingly… and see you in December to reap the rewards!