Investment markets in 2023 will be shaped by interest rate rises, heightened inflation brought about by global food shortages and soaring energy prices as well as the re-opening of China.

“I do think it’s going to be another year of volatility, particularly as the market is in a bit of a tug of war around what does potential peaking in inflation mean versus slowing growth,” Penny Heard, head of Australian equities and quant strategies at UniSuper said.

“Inflation is still very much front of mind and today we’re looking at a cap on energy, and more energy instability on the back of Ukraine war but also, food prices and shortages around food given the recent weather incidents in Australia.”

Global economies have yet to experience the full effect of the rate hikes Sonya Sawtell-Rickson, chief investment officer of HESTA said. “It has been one of the most aggressive interest rate hiking cycles in decades. The impact of that on the real economy is yet to really flow through. We know the lags in monetary policy changes can be six to 12 months so they are likely to hit next year,” she said.

“That’s going to have an impact on demand and the probability of recession is obviously heightened and depending on the severity or duration of the potential recession, we could see more volatility ahead.”

However, Sam Sicilia, chief investment officer of the $94 billion hospitality industry super fund Hostplus was more sanguine that global markets would be less volatile in 2023 with the end of the pandemic restrictions and COVID supply chains disruptions improving.

While no one could be sure of the exact timing of these events he said improving sentiment and easing pressures could see a further upturn in world equity markets this year.

“We don’t know when, but we know the pandemic will end and its consequences for supply chains and the era where everyone has been locked up will also come to an end.”

He said any sign that the war in the Ukraine would come to an end would also be a positive boost for markets. “As a long-term investor, you use your cash flow to take advantage of opportunities.”

It’s all about rates

Allison Hill, chief investment officer, responsible for managing the state investments team of Queensland Investment Corporation is expecting central banks in the US and Australia to continue to increase rates early in 2023.

“Central banks will keep going until they see that slowdown in wages growth and retail spending – the signs that are really going to allow them to take their foot off the accelerator.”

“It is hard to do well, so it’s possible that they could apply a stronger set of brakes that may actually be needed, because data is imperfect.”

However, Hostplus’ Sicilia expected to see interest rates fall in 2023 as inflationary pressures eased.