Investment Outlook

Navigating the new global economy in 2023

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This is an executive summary of our 2023 Investment Outlook, in which specialists from across our investment platform share insights on the economic and market forces that we expect to influence portfolios in the year to come. 

Reflecting on 2022, we’re confronted with the reality that a new economic and market regime has begun. We expect the new year and those to follow will keep investors on their toes as this transition to a new economic landscape continues to unfold. 

Our 2023 Outlook explores the questions: What exactly is this economic “new normal”? How should investors’ strategies evolve to better fit this new environment? How will different asset classes be impacted? Where does this change present risks and opportunities for our clients?

At Wellington, we do not have one unified “house view” on the global economy and markets. That’s because we know that the best investment ideas are often uncovered when a diverse talent pool is encouraged to bring forward a range of unique, independent, and (at times) divergent perspectives and insights. As such, this executive summary distills the distinctive viewpoints of multiple Wellington investors, strategists, and other professionals.

Understanding the new regime

Several of the macroeconomic pillars that have underpinned relatively strong investment performance for the past 20 – 30 years began to crumble in 2022 (Figure 1).

Figure 1


These broad macro dynamics are all intertwined and, taken together, their reversal marks the onset of a new, potentially more challenging economic era for investors. 

  • After many years of globalization, we’re now entering an age of deglobalization. The COVID pandemic exposed worldwide supply-chain dependencies and potential security risks that have many countries seeking to onshore strategic sectors and industries, such as semiconductors, biotechnology, artificial intelligence, and renewable technologies. Restructuring these supply chains stokes higher inflation via higher labor costs, for example.
John Butler
Macro Strategist

I think globalization has peaked and some aspects are reversing.

John Butler
Macro Strategist
  • This suggests that today’s higher inflation is structural, rather than cyclical. It’s likely here to stay, albeit probably not at the 40-year highs we saw in 2022. We also expect inflation to be more volatile going forward, with potential for more violent swings over time.
  • This persistently higher, more volatile inflation backdrop may also signal the return of more frequent, less predictable economic cycles in the period ahead, driven in part by a supply side that may remain “sticky” even as demand tends to fluctuate sharply. 
  • And global central banks may no longer be able to step in and "save the day” with interest-rate cuts and quantitative easing. Monetary policy is likely to be more restrictive going forward, potentially making central banks sources of volatility rather than stabilizing influences. Their struggle to balance growth and inflation will continue into 2023 and beyond. 
  • As if there weren’t enough volatility-inducing forces at play, global geopolitical instability is also ramping up, with very real implications for the capital markets and investor strategies. The ongoing Russia/Ukraine conflict and China’s increased role on the world stage are two prime examples. These geopolitical uncertainties have contributed to the trend toward deglobalization.

The key takeaway from all of this is that investors will have to contend with looming economic recession risks in 2023, along with other longer-term considerations, and think about how they might need to position their portfolios accordingly. 

Seeking to minimize downside…

The hallmarks of this new macroeconomic era have contributed to a weakening of the diversifying relationship between equities and traditional bonds. Investors may no longer be able to count on the classic, often-reliable 60/40 equity/bond split to confer sufficient portfolio diversification. In fact, the historically negative correlation between the two asset classes turned positive in 2022 as both fell in tandem, adding risk to many investor portfolios.

Since conventional bonds may no longer provide the same amount of portfolio ballast as in the past, investors might benefit from searching for equity downside mitigation elsewhere; for example, in hedge funds or defensive equities that might better weather challenging economic environments. 

This is not to say that global fixed income has lost all its luster. However, investors may wish to reevaluate their existing fixed income allocations in favor of less traditional opportunities to pursue yield and total return in a risk-aware manner, such as within some higher-yielding credit sectors.

Rob Burn
Fixed Income Portfolio Manager

I believe higher-yielding and income-seeking fixed income strategies have the potential to act as powerful buffers against future interest-rate and credit-spread volatility.

Rob Burn
Fixed Income Portfolio Manager

…and maximize upside potential

Despite the greater degree of uncertainty that attends seismic shifts in the macroeconomic landscape, there are always opportunities to be found. Notable thematic investment game changers to watch for in the future include climate change and sustainability, rapid digitization, and aging demographics. These big-picture trends create fertile ground for disruptive innovations and blossoming industries on which investors might seek to capitalize. What’s more, thematic equity investing could be an effective solution to rising economic and business cycle risks.

mary pryshlak
Mary Pryshlak
Head of Investment Research

In today’s era of heightened market volatility and rampant investor ‘short-termism,’ having conviction in compelling, long-term structural trends could prove to be a defining edge.

Mary Pryshlak
Head of Investment Research

On the sustainability front, as climate-change mitigation and adaptation efforts continue to become ever-more important, several far-reaching ESG-related themes look poised to gain traction. These range from environmental initiatives like cleaner energy alternatives (e.g., electric vehicles) and biodiversity protection measures, to social and governance issues such as diversity, equity, and inclusion, human safety, shareholder rights, and cybersecurity. 

Wendy Cromwell, CFA
Head of Sustainable Investment

We expect to engage with companies on their potential biodiversity risk exposure, including the physical risks of weakening ecosystem.

Wendy Cromwell, CFA
Head of Sustainable Investment

Another path to enhancing upside potential in investor portfolios may be through alternative investments, including both private equity and private credit to complement public-market allocations. The private-equity sphere, for instance, appears to have ample room for growth and may offer some attractive return opportunities.

The road ahead: Paved with possibilities

This past year may have marked the death knell for one macro regime and the birth of another. But with big, ongoing economic and market changes, no matter how uncertain or uncomfortable, come new possibilities for discerning investors. To wit, we believe the new investment setting may prove to be one that is well suited to skilled, active portfolio management.

For another view of our 2023 outlooks, please see Picture this: Our 2023 economic forecast in 5 charts.  This series of images captures key investable ideas across our macro, equity, bond, alternative, and sustainable investing outlooks.

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