New York: Springer. Some of the world’s most powerful investors expect that stocks will rise by low double digits next year, but the road to recovery will not be straight.

In the midst of recent confidence that inflation has peaked and that the Federal Reserve would soon begin to shift its tone, 71% of respondents in a Bloomberg News poll anticipate equities to gain, while 19% predict falls.

The informal survey of 134 fund managers, which was conducted between Nov. 29 and Dec. 7, included the perspectives of prominent investors such as BlackRock Inc., Goldman Sachs Asset Management, and Amundi SA. It provides insight into the major themes and challenges they expect to face in 2023, following a year in which market returns were pummeled by inflation, the Ukraine crisis, and hawkish central banks.

A similar survey last year indicated that aggressive central bank policy tightening would be the biggest threat to stocks in 2022.

Small Profit

Those who predict global equities to rise see a 10% increase in 2023. That is consistent with the MSCI All-Country World Index’s average historical return, although it appears low in comparison to recent rallies such as 2009 and 2019, when equities returned more than 30% and 20%, respectively.

Investors are cautious for the start of the year, predicting that stock market gains would be concentrated in the second half of 2023.

When it came to individual industries, respondents generally preferred organizations that can protect earnings during an economic slump. Among their recommendations were dividend payers and insurance, health care, and low-volatility companies.

The Most Dangerous Situations

The largest obstacles to a prospective recovery are somewhat intertwined, with investors concerned about persistently high inflation or a prolonged recession, which were mentioned by 48% and 45% of participants, respectively. The road forward might be revealed as early as next week when investors will be bombarded with headline concerns such as US consumer-price data for November, as well as rate decisions and commentary from both the Federal Reserve and the European Central Bank.

The Return of Technology

According to the survey, after being battered this year as interest rates rose, US technology companies may regain popularity. More than half of those polled stated they would invest in the sector.

Those in support point out that, despite the recent surge, values are still relatively low, and bond yields are likely to fall next year.

However, the mood is evolving away from a broad “buy growth” strategy, with many participants suggesting being very careful when returning to the segment, putting money solely on companies with established business plans and stable financials even in an economic downturn.

China Possibility

Approximately 60% of investors are bullish on China, especially as it moves away from Covid zero. After a drop earlier this year, valuations are now significantly below their 20-year average, making them more appealing when compared to US or European peers. Political and regulatory concerns are too great for those advising against visiting the region. Similarly to large tech, the bulls advise being very selective when picking equities.

The Power Source

Greater news on inflation and growth could be triggers for better performance for fund managers. Almost 70% of respondents stated that they were the most important potential positive characteristics. They also mentioned a full reopening of China and peace in Ukraine as potential upside triggers.

The emphasis on inflation and growth as the deciding factors is consistent with the findings of Bank of America Corp.’s most recent fund manager survey. It revealed that recession forecasts were at their greatest since April 2020, with a “stagflation” scenario of poor growth and high inflation “overwhelmingly” favored.

Oppositional Point of View

The optimistic outlook of money managers contradicts what Wall Street predicts. Separate Bloomberg strategist polls predict gains of less than 2% for Europe and a measly 1% for the US stock market.

One of the key arguments mentioned by strategists for expecting a basically flat stock market next year is the central bank’s aggressive monetary policy, which will result in a slowdown of global growth momentum in the first half of 2023. They anticipate that the impact on equities will be partially offset by a drop in real bond yields.

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