Top 10 risks and opportunities for 2023 – A mid-year reflection

At the risk of jinxing things and, barring a few weeks in March where the collapse of Silicon Valley Bank looked like it could create broader risks for the banking system, the first half of 2023 was relatively uneventful. Particularly when compared to the corresponding periods in 2020 and 2022.

After a year of negative returns for both bonds and equities, “the scores on the board” look healthier for both. Equities have bounced strongly with the MSCI ACWI returning 12.8% in local currency and technology-heavy indices like the NASDAQ are doing even better - up 31.7% in the first half of 2023. More defensive equity markets such as the S&P/NZX 50 (up 3.9%) have lagged. Bond returns have delivered positive returns of 2.7% for the Bloomberg Barclays Aggregate Index and 1.8% for the Bloomberg Composite Bond Index. Further, upward inflation surprises that were a feature of 2022 have dissipated and equity market volatility has fallen considerably.

In our 2023 Top 10 Risks and Opportunities article we noted just how downbeat the consensus was heading into 2023, which, in hindsight, created a low bar for upside surprises. Many Wall St strategists had negative return expectations for the S&P 500, investors were underweight technology stocks, and the US was widely picked to fall into recession by H2 2023. Today, the consensus paints a less bearish view. In recent months we have seen net upgrades to equity market price targets, positioning towards technology stocks seems to have moved to a more neutral to overweight position and the much-anticipated US recession has, so far, failed to eventuate.

This again reminds us that the greatest risks and opportunities in markets arise from consensus views, which ultimately prove incorrect and spur repricing. With that in mind, we consider what could move the consensus as 2023 progresses. Here are the five that are front of mind (plus a bonus risk!).