BY DR SOHA MAAD
Introduction
Global markets are welcoming the new year 2023 with greater resilience, more economic uncertainties, big challenges, and more adaptable investors and global supply chains. This article depicts the outlook of global markets in 2023 in face of upcoming challenges and continued trends carried from last year 2022.The article starts with a brief overview of global markets, indices, and asset classes, and predicts the future trends, outlook and opportunities in global markets in 2023. The article concludes with predictions for future assets classes in light of more resilient global markets in 2023.
Overview Of Global Markets
A global market is an exchange for goods or services that crosses national boundaries to encompass the entire world. Global markets also refer to the total of all of the market activity that takes place in the world. It may also refer to the market in a specific commodity product (like oil) or currency. Global markets are affected by a complex combination of international economic forces and the combined and interacting results of regulation in all of the nations that comprise the marketplace.
The modern global market is characterized by the very rapid flow of capital from sector to sector and nation to nation in pursuit of profit. Stock and bond markets strongly influence one another. In some cases, this amplifies the economic impact of events, as government bonds or regional stock markets can be subject to quite intense pressure from global investors during times of perceived crisis. This phenomenon can place tremendous pressure on national currencies and debts.
Historically, the market in commodities was one of those most profoundly impacted by globalization. Economic developments in any nation now tend to have an impact on commodity prices throughout the global economy. The oil sector is an ideal example of a global commodity market. Both the demand and the supply of oil are highly inelastic. This lack of flexibility in the marketplace means that a relatively small decrease in production or increase in demand anywhere in the world can produce a great shift in the value of oil everywhere in the world.
Global currency markets are a particularly extreme example of this variety of marketplace. Currency trading tends to involve the rapid flow of wealth, as investors seek out greater profits on a very short-term basis. This phenomenon has led to several efforts to limit the functioning of the global market in currencies, as the rapid, largely speculative buying and selling of currencies can have a substantially disruptive effect on markets in actual physical goods.
Global Markets Indices
Global indices are a benchmark to evaluate the strength or weakness in the overall market. Normally, a sample of highly liquid and valuable stocks from the universe of listed stocks is selected and made into an index. The weighted movement of these sets of stocks or portfolios of stocks constitutes the movement of global indices. So, if global indices are moving up that means the markets are strong and if global indices are moving lower that means global markets are weak.
Global indices can be considered as a hypothetical portfolio of investment holdings that represents a segment of the financial market or the global indices market. The calculation of the index value is derived from the prices of the underlying stocks or assets in the index.
Globally, different indices are followed by investors. In the United States US, the three most popular stock indexes for tracking the performance of the US market are the Dow Jones Industrial Average (DJIA), the Standard and Poor’s S&P 500, and the National Association of Securities Dealers Automated Quotations NASDAQ Composite Index. The NASDAQ is the over-the-counter market OTC market that trades in high technology sectors like Information Technology IT, e-commerce, biotechnology, etc. Similarly, in bond markets, Bloomberg Barclays is a leading provider of market indexes with the Bloomberg Barclays U.S. Aggregate Bond Index being a popular benchmark.
Key characteristics of global indices are:
- Global indices provide a broad representative portfolio of investment holdings of an asset class.
- Methodologies for constructing global indices vary but most of the indexes are based on market cap weighting and free float weighting.
- Global indices act as benchmarks to gauge the performance of market segments and also as a barometer of the economic robustness.
- Indexes can be used as a proxy for a passive portfolio in the form of index funds or index for Exchange-traded funds ETFs.
Global indices have their method for calculating the index value that is based on the method approved by their index committee. Weighted average mathematics is primarily the basis for all index calculations. Many indices started as price-weighted indices but eventually shifted to becoming market-cap-weighted to ensure that smaller stocks do not exert an inordinate impact on indices. Similarly, in the modern-day, most of the indices are also free-float weighted. That means while calculating the market cap for weighting, the market cap of the promoter holdings is excluded to give a more precise picture.
The most popular global indices like the Dow Jones, The Financial Times Stock Exchange FTSE, Deutscher Aktien Index DAX, Cotation Assistée en Continu CAC, Nikkei, Nifty, Sensex, etc. give an overall view of the market and also economic robustness.
|
INDEX NAME |
LAST |
+/- |
TIME |
YTD |
|
NORTH AMERICA |
||||
|
3,844.97 |
22.89 |
04:35:04 PM |
3.66% |
|
|
Dow Jones |
33,517.65 |
-112.96 |
04:20:01 PM |
1.15% |
|
NASDAQ 100 |
11,108.45 |
68.09 |
04:36:05 PM |
2.26% |
|
NASDAQ Comp. |
10,635.65 |
66.36 |
04:36:05 PM |
2.39% |
|
6,011.68 |
135.33 |
04:04:45 PM |
3.59% |
|
|
NYSE US 100 |
13,574.49 |
239.99 |
04:05:30 PM |
1.87% |
|
Russell 2000 |
1,803.90 |
3.1 |
04:25:06 PM |
2.51% |
|
S&P 500 |
3,892.09 |
-2.99 |
04:20:01 PM |
1.78% |
|
S&P/TSX |
19,814.51 |
307.67 |
04:55:46 PM |
1.91% |
|
VIX |
21.97 |
0.84 |
04:15:01 PM |
-4.06% |
|
103.20 |
-0.6 |
04:25:13 PM |
-0.28% |
|
|
WESTERN EUROPE |
||||
|
DAX |
14,792.83 |
182.81 |
11:55:00 AM |
5.14% |
|
DivDAX |
177.51 |
1.68 |
11:55:00 AM |
6.31% |
|
MDAX |
27,560.89 |
590.79 |
11:55:00 AM |
8.19% |
|
TecDAX |
3,091.65 |
63.93 |
11:55:00 AM |
6.37% |
|
AEX |
736.18 |
11.92 |
12:05:02 PM |
4.99% |
|
CAC 40 |
6,907.36 |
46.41 |
12:05:02 PM |
4.74% |
|
FTSE 100 |
7,724.94 |
25.45 |
11:35:29 AM |
2.26% |
|
IBEX 35 |
8,701.10 |
93.5 |
11:38:00 AM |
3.96% |
|
OMXS30 |
2,137.44 |
17.09 |
11:35:00 AM |
2.97% |
|
SMI |
11,212.57 |
68.03 |
11:31:20 AM |
2.13% |
|
SOUTH AMERICA |
||||
|
BOVESPA |
110,980.00 |
5035 |
01:18:21 PM |
5.4% |
|
BSX |
2,317.69 |
8.04 |
04:30:36 PM |
0% |
|
IGPA |
15,898.33 |
96.19 |
02:45:45 PM |
0.94% |
|
IBC |
20,747.40 |
819.71 |
12:03:21 PM |
-0.77% |
|
BVQ |
1,261.97 |
-2.85 |
06:01:03 PM |
-0.9% |
|
EASTERN EUROPE |
||||
|
RTS |
977.79 |
35.06 |
10:50:00 AM |
1.53% |
|
SAX |
340.45 |
-0.43 |
11:01:02 AM |
1.71% |
|
AFRICA / MIDDLE EAST |
||||
|
EGX30 |
16,096.87 |
94.69 |
07:59:56 AM |
7.59% |
|
NSE 20 |
1,705.33 |
19.62 |
06:34:12 AM |
1.16% |
|
ASIA / PACIFIC |
||||
|
Australia All Ordinaries |
7,355.80 |
47 |
12:39:44 AM |
3.15% |
|
Hang Seng |
21,388.34 |
396.7 |
03:08:52 AM |
6.17% |
|
KOSPI |
2,350.19 |
60.22 |
04:03:40 AM |
5.59% |
|
NIKKEI 225 |
25,973.85 |
153.05 |
01:00:01 AM |
1% |
|
SENSEX |
60,747.31 |
846.94 |
07:29:00 AM |
-0.69% |
|
Shanghai Composite |
3,176.08 |
18.45 |
02:00:18 AM |
1.91% |
Global Markets Indices for USA, Americas, South America, West Europe, Eastern Europe, Africa and Middle East, Asia/Pacific
Source: https://markets.businessinsider.com/indices
Global Markets Assets Classes
Global markets asset classes are groups of similar investment vehicles. Different classes, or types, of investment assets, such as fixed-income investments, are grouped together based on having a similar financial structure. They are typically traded in the same financial markets and subject to the same rules and regulations.
Many market analysts and financial advisors divide assets into the following five categories:
- Stocks or equities: Equities are shares of ownership issued by publicly-traded companies. They are traded on stock exchanges such as the New York Stock Exchange NYSE or NASDAQ. Investors can potentially profit from equities either through a rise in the share price or by receiving dividends. The asset class of equities is often subdivided by market capitalization into small-cap, mid-cap, and large-cap stocks.
- Bonds or other fixed-income investments: Fixed-income investments are investments in debt securities that pay a rate of return in the form of interest. Such investments are generally considered less risky than investing in equities or other asset classes.
- Cash or cash equivalents, such as money market funds: The primary advantage of cash or cash equivalent investments is their liquidity. Money held in the form of cash or cash equivalents can be easily accessed at any time.
- Real estate or other tangible assets: Real estate and other physical assets are considered an asset class that offers protection against inflation. The tangible nature of such assets also leads to them being considered as more of a “real” asset. In that respect, they differ from assets that exist only in the form of financial instruments, such as derivatives.
- Forex, futures and other derivatives: This category includes futures contracts, spot and forward foreign exchange, options, and an expanding array of financial derivatives. Derivatives are financial instruments that are based on, or derived from, an underlying asset. For example, stock options are a derivative of stocks.
Assets may also be categorized by location. Market analysts often view investments in domestic securities, foreign investments, and investments in emerging markets as different categories of assets.
Other asset classes include collectibles, hedge funds or private equity investments, and cryptocurrencies such as Bitcoin. These asset classes are sometimes classified together under the heading of “alternative investments”. Generally speaking, the more “alternative” an investment is, the more illiquid and the riskier it tends to be.
The diversity of available investments creates complications. Exchange-traded funds (ETFs), for example, trade on exchanges, just like stocks. However, ETFs may be composed of investments from one or more of the five basic asset classes. An ETF that offers exposure to the energy market may be composed of investments in oil futures and in stocks of oil companies.
Diversification is the practice of reducing overall risk by spreading investments across different asset classes. There is typically little correlation, or an inverse or negative correlation, between different asset classes. During periods of time when equities are performing well, bonds, real estate, and commodities may not be performing well. However, during a bear market in stocks, other assets, such as real estate or bonds, may be showing investors above-average returns.
Investments in one asset class can be hedged to reduce risk exposure, by simultaneously holding investments in other asset classes. Asset allocation is the practice of reducing investment portfolio risk by diversifying investments across different asset classes.
Risk-averse investors invest only in relatively safe asset classes. Stock investors commonly diversify by holding a selection of large-cap, mid-cap, and small-cap stocks. Alternately, they may seek diversification through investing in unrelated market sectors. High-risk tolerance investors care very little about diversification, and are just focused on trying to identify the asset class that currently offers the highest potential profits.
Global Markets Drivers In 2023
According to world experts’ forecasts, the global market drivers in 2023 will be:
- Inflation and recession: Inflation was the top market driver in 2022. Prices around the globe soared, driving central banks to collectively hike interest rates more than 300 times. In the United States, inflation hit a four-decade peak. Inflation and fear of recession will remain the main drivers of the global markets in 2023.
- China’s zero-Covid policy: China shutdown for significant periods of time over the past three years is impacting businesses and citizens and global trade.
- Russia and Ukraine war: Russia war in Ukraine is a prolonged war driving global food and fuel prices to high levels. In 2023, an energy crisis is gripping Europe. International Energy Agency chief Fatih Birol and European Commission President Ursula von der Leyen have warned that Europe could face a natural gas shortage of 27 billion cubic meters in 2023. That is equivalent to nearly 7% of the region’s annual consumption.
- Crypto currency: Year 2022 was a very bad year for crypto. Bitcoin’s value fell by more than 64% in 2022 as the United States Federal Reserve raised interest rates and investors settled into their risk-off, bear market strategies. The crypto world was also rattled in 2022 by the shocking death spiral of digital currency exchange FTX. Elon Musk has lost a bigger fortune than anyone in history. Demand for Teslas weakened as competition in electric vehicles from established automakers surged last year.
Global Markets Outlook And Opportunities In 2023
With many of the challenges of 2022 continuing into 2023, the outlook and opportunities of global markets and economies are:
More Resilience In 2023
During 2022, global markets were impacted by a series of significant challenges: the COVID pandemic, disruption to global supply chains, the outbreak of war between Russia and Ukraine, and higher energy and food costs leading to rising inflation. Many of these issues are set to persist into 2023, along with new concerns. Yet despite potential challenges ahead, there are signs that investors, businesses, consumers and supply chains are beginning to adapt to more difficult conditions, hence global markets are becoming more resilient.
Weak Economic Outlook 2023
After several years of turbulence, and grappling with a range of converging crises, economies around the world are slowing. And they are slowing more than many initially anticipated. The International Monetary Fund IMF has lowered its forecast for Global Gross Domestic Produce GDP. The slowing of GDP growth comes at the same time as inflation reaches a forty-year high in many countries, driven by sharply rising energy and food costs.
Global Market Uncertainties From Russia-Ukraine War
Russia-Ukraine war has not only contributed to global inflation, but it has also exacerbated disruptions in global supply chains and global markets. This is creating huge uncertainties in global markets.
Low Confidence In Global Markets
The high cost of energy, commodity shortages and supply chain disruptions have contributed to rising prices, leaving investors with less income. As a result, confidence in global markets is falling sharply to levels below those seen at the beginning of the pandemic.
More Resilient Global Supply Chains
The global supply chain disruptions that began during the pandemic will be continuing in 2023. Shortages of raw materials, ongoing lockdowns in some locations, and bottlenecks in production and logistics will be all impacting product availability during 2023. However, despite the challenges and the weaknesses and vulnerabilities, global supply chains will adapt to overcome and minimize disruption to operations. In the long run, we expect such adaptation to global supply chains to be broadly positive. Although there may be some loss of efficiency, over the long term, global supply chains will be more resilient to future shocks, more sustainable, more socially responsible and more transparent.
Investors Adaptation
Investors will be learning in the first few months of 2023. It is essential for investors to keep monitoring and adapt to global markets conditions.
Investors should adapt their approach for regions and markets. Economic challenges will play out differently across regions and categories. Understanding how global markets are moving will be essential to tapping into growth opportunities. For example, developed markets are predicted to see lower GDP growth than their emerging counterparts, so investors may focus more on the emerging markets.
Demand For Ethical And Sustainable Investment
Despite a generally weaker outlook for 2023, there will certainly be bright opportunities for investors that can be identified and grasped in global markets. Demand for ethical and sustainable investment opportunities is expected to rise over the coming years.
2023 Forecast For Various Assets Classes In Global Markets
Stocks and bonds experienced significant losses in 2022, making it one of the worst years for a balanced portfolio. Although there are indications that global inflation is on track to decline, it is unclear by how much and how quickly.
In 2023, investors will focus on two central questions:
- What asset class might help protect investment portfolio through a recession?
- How much will be future damage from risk assets?
In 2023, investors may find opportunities in bonds, preferred equities, small and mid-cap stocks and infrastructure and transport assets. Additional opportunities will probably emerge in sectors such as real estate, tech and tech-related sectors. Industrial companies, provide some inflation protection and benefit from global infrastructure and defence investment. Dividend growth and value companies could be well positioned, given the uncertain macro environment and higher interest rates.
Alternative investments, such as hedge funds that concentrate on rates, currencies and cross-asset correlations, will be essential for portfolio diversification. Gold may be also used for portfolio diversification in 2023 as the dollar and real interest rates reached their apexes. In 2023 and beyond, there will be a renewed emphasis on stability and security throughout the global economy. Real assets such as infrastructure, transportation and the energy transition create a wide range of possibilities for public and private investors. The global reset in valuations will be presenting investors with a broader range of viable options to help achieve their goals.
Conclusion Towards More Resilient Investment In Global Markets
From inflation to energy shortages and general instability, global markets are set for a turbulent year ahead. However, there are good reasons to be optimistic that the current challenges will build long-term resilience in global markets. In the meantime, there will be opportunities and uncertainties. Investors and global supply chains will be also more resilient to future shocks. But as global markets adapt to the new conditions, investors will need data and insight more than ever to understand the fast-moving situation in global markets and stay ahead of trends.
References
IGI-Global, Smart Capital Mind, Money Control, CNN Business, GFK.COM, OECD Economic Outlook, International Monetary Fund (IMF) World Economic Outlook, GLOBAL MARKET INDICES INSIDER, India Info Line, JP Morgan, Corporate Finance Institute, Flow Bank Research, Wall Street Mojo, Coin Telegraph, Russel Investment, The National News.
