Where to Invest in 2023 in a Slowing Global Economy?

The current year went into a mix of rebound from pandemic effects and fears of recessions. The next year does not look promising for investors either.

Therefore, choosing the right investment options is critical. Investors must be mindful of a slowing global economy, looming recessions, high inflation rates, and political instability.

Global Economic Forecast for 2023
Although the global economy is not in danger of immediate recession risk, the forecasts for 2023 don’t look too optimistic either.

Experts predict a slow and sluggish economic growth rate of around 1.6% for 2023. The Chinese economy growing at around 4%, being the main driver once again.

The emerging markets could grow at 2.9%, developed economies to grow at 0.8%, and the US economy is projected to expand at a meager 0.8% in 2023.

Central banks around the world are increasing interest rates to control inflation. Disrupted supply chains, rising energy costs, expensive borrowings, and other factors have meant there is little recovery expected in an already turbulent 2022.

Interest Rates, Currencies, and Commodities

Experts argue that central banks will cease the interest rate hikes in 2023 at some stage. It means the debt and mortgage markets will settle down.

Despite these actions, most experts expect a mild recession for the EU zone and an inevitable recession in the US leading into 2024.

The US dollar is expected to depreciate a little too. The global oil market is also expected to stabilize provided Russian oil production returns to normal levels.

Stock Market Outlook

The effects of a slowing global economy are already visible in the stock and bonds markets. The same trends will expectedly continue throughout the year 2023 too.

The 10-Year Treasury rate is expected to remain around 3.5% which is lower than the previous year. The S&P500 is suggested to remain around the 4,000 points mark in 2023 although it will see a fluctuating year once again.

With the global economic conditions deteriorating further, it’s unlikely that the fundamentally strong stocks will hold for longer. The fear of a recession, rising inflation rates, and higher unemployment rates will come into play.

The emerging markets were the first ones to enter the bear markets during the last year. These markets are likely to reverse the trend early too.

Similarly, we can expect a mild recovery from the European and UK equities. Although their forecasted returns are expected to remain below the inflation rate which currently remains in the double digits in the UK.

Where to Invest in 2023 in a Slowing Global Economy?
Investors expect a sluggish global economic recovery. The EU market is expecting to fall into a mild recession earlier and the US to follow suit later in 2023.

Investing in the Bond Market

Investors expect a pause in interest rate hikes in the coming year. Some expect interest rates to start declining later in the year too.

It means strong and quality bonds can be a good investment as they strengthen with stable interest rates. However, the return on most fixed-income instruments is expected to be in the single digit.

The US mortgage-backed securities with AAA ratings, municipality bonds, and European investment grade bonds are good investment options if you are looking for stable fixed income next year.

Resistant and Growth Stocks

As always, advisors suggest investing in resistant stocks. These are the stocks with established histories and strong financial statements.

Then, these are the stocks that perform well during economic recessions too. For example, Procter & Gamble is a classic recession stock whose products will be in demand even during a recession.

Similarly, unless something dramatic happens, Microsoft products will remain in demand globally. Consider other growth stock options like Nvidia, Apple, Tesla, Home Depot, etc.

Investing in Emerging Markets

Another excellent choice for investors is to keep an eye on emerging and growing markets like China, India, and Brazil.

Strong equities from these economies are likely to perform well too. A forecast analysis from Morgan Stanley expects around 12% return from mid and large-cap index MSCI EM.

Similarly, fixed-income securities, government treasury bills, and bonds from emerging markets are likely to offer a double-digit return in the coming year too.