The past year saw the end of a number of assumptions, and 2023 is one about which Geneva-based Apricus Finance is moderately optimistic. But certain threats remain, it says.

Geneva-based Apricus Finance is underweight equities, is neutral on fixed income and holds gold; it is taking a moderately positive view for 2023 but mindful of several threats.

The wealth management firm said that within its overall equities position, it has a “very sizeable overweight” to Continental Europe and a large underweight stance in US equities. It is neutral on the UK and Japanese stock market, and is overweight on Asia ex Japan thematic equities. (See a previous report on its views here.)

“We believe that inflation has peaked, in early summer in the US and in late 2022 in Europe. In the US, inflation could surprise to the downside this year. We think the market is underestimating the deflationary power of consumer and durable goods, along with falling housing prices, while we acknowledge that services inflation might stay higher for longer,” Apricus Finance said in a note about its investment thinking.

“As highlighted in December, the US consumer is not that healthy. It has already spent its pandemic savings and financed its recent spending with credit cards," he said. 

The external asset manager (EAM) has a neutral stance on fixed income; it is underweight euro and dollar high-yield debt, and is overweight investment-grade euro and dollar bonds.

In currencies, Apricus Finance is positive about the euro against other major currencies, it is overweight commodities and has a long position on gold.

Along the cycle
Apricus Finance said it thinks central banks are “actually much further along their tightening cycle.” (A number of central banks, such as the US Fed, European Central Bank and Bank of England hiked rates last week.)

The firm said recent Federal Reserve comments about its desire to squash inflation should be “taken in perspective” because a year ago, the Fed predicted inflation at 1 per cent this year.

In Asia, it appears that China’s abandonment of a zero-Covid policy has paid off, with the population attaining “herd immunity” and allowing the economy to reopen, benefiting the rest of Asia and Europe.

As for the risks of a recession, it has been widely predicted but it is possible that the world might avoid that fate, Apricus Finance said.

On the US, the firm said US earnings and revenue expectations need to be downwardly adjusted; in Europe, where equities are pricing 11 times forward earnings, valuations are discounting a recession, but the US market is not, at 17 times.

Threats
Apricus Finance said there are a few threats to consider, such as a difficult debt ceiling negotiation in the US Congress this year, raising the risk of a prolonged Federal government shutdown. Another threat is the risk that inflation becomes entrenched; China stumbles in its reopening, and Russia no longer accepts fighting a proxy war against Ukraine, raising the chance of a direct military clash with NATO. Other threats include a Chinese invasion of Ukraine.

Looking back to 2022, the report noted that this was the end of an era for a number of themes: the end of fiscal stimulus and quantitative easing; the end of “outrageous outperformance of US mega caps"; the “end of investors chasing companies with attractive new technologies that might never turn a profit”; the end of the “belief that the number of subscribers to services and the pool of advertisement might be unlimited”; “the end of the belief that the transition to renewable energy might be rapid and cheap"; and the “end of the quixotic dream about a decentralised financial system, independent from governments and central banks, that offers sky-high risk-free rewards.”