Many factors are converging to influence the Australian market outlook in 2023 and beyond. For investors, this presents both challenges and opportunities. While inflation and recession fears have been constant pain points in recent months, many experts also believe this year will see the share market rebound.
No one has a crystal ball to see into the future, but it can be worthwhile to take a broader view of the market and see how these various influences may — or may not — disrupt your investment strategy for the year ahead.
Inflation impacts
There is no denying that inflation remains a serious concern for many Australians — investors and non-investors alike. Rising inflation has contributed to the RBA lifting the cash rate for the ninth-consecutive time, resulting in more expensive borrowing conditions for businesses and consumers. Over the coming months, the added pressure of even more interest-rate rises could lead to slower economic growth and reduced corporate profits, negatively impacting many sectors and listed companies.
Inflation-induced volatility could also cause investors to adjust their expectations for future earnings and economic conditions. Rather than sticking to the stock market, some may instead park their money in commodities and real estate, which may provide a hedge against inflation.
Ultimately, no one can predict the long-term impact of inflation on the ASX and the broader Australian market outlook. It is important to do your due diligence and monitor inflation trends concerning your preferred industries and specific companies you want to invest in.
Recession fears
Rising interest rates, a cooling property market, borrowers’ fixed rates ending and a potential surge in foreclosures on the horizon — all these indicators may suggest Australia is on the cusp of a recession. Nothing is for certain, and in many respects, the country is well placed to see out any significant financial disruption. However, each continual cash-rate rise from the RBA pushes the economy further into negative growth.
The good news is that experts, such as former Treasury economist Warren Hogan, say that even if Australia does succumb to a recession, it will likely be “shallow, short-lived and followed by a strong recovery,” as he told ABC News. Moreover, such a drastic change to market conditions will help bring down inflation.
International banking collapses
March 2023 spelt financial trouble for several international financial institutions, including Signature Bank, First Republic Bank and Silicon Valley Bank in the United States and Switzerland’s Credit Suisse. While these events have been causes for concern, it is predicted that Australian banks will remain unscathed.
Australian Treasurer Jim Chalmers noted, “Australians should be reassured that our institutions are solid, our banking sector is well-capitalised, and we’re in a better position than most other nations to deal with the challenges we face in the global economy”.
Stock market predictions
Whether you are a newcomer to the share market or have decades of experience with the ASX, any prediction should be taken with a grain of salt. It is up to you to do your own research and decide whether a particular opportunity matches your risk tolerance.
Thankfully, 2023 started very positively for most of the ASX, with its best start to the year in at least three decades. On top of that, Westpac chief economist Bill Evans expects inflation to slow to 3.7% — well below the RBA’s prediction of 4.7% — this year. The markets will undoubtedly monitor the core inflation measure to understand the underlying momentum of specific prices better.
With other economists from the Big Four banks also tipping the share market to rebound in 2023, now may be the ideal time to dip back into the ASX or other exchanges to take advantage of a potential market upturn.
It is important to remember that these are uncertain economic times, and those who are more risk-averse may prefer to stick with sectors with the fundamentals to navigate uncertain times, such as healthcare, consumer staples and utilities.
While you should always make your own assessment of stocks before deciding to invest in them, some interesting picks for 2023 include:
- Market-leading real estate stocks, such as Goodman Group (ASX: GMG)
- Strong dividend-paying stocks, such as Woodside Energy Group Limited (ASX: WDS)
- Beneficiaries of consecutive rate rises, such as the Commonwealth Bank of Australia (ASX: CBA)
Crypto regulations
Cryptocurrency and its many offshoots, including NFTs, have not exactly had a good time lately. But that is not to say there are not exceptional opportunities for savvy investors who understand the crypto landscape and believe in the future viability of open-source payments.
Having said that, the need for regulation appears to have caught up with crypto in Australia, and we could see some significant changes to this space in 2023. While the famous Bragg report is unlikely to be implemented in its original and complete form, much of the bill may inform subsequent crypto regulations.
In addition to existing laws that affect the crypto sector — including the anti-money laundering and counter-terrorism financing (AML/CTF) regime, the credit activities and services regime, the consumer law and unfair contract terms regime, and many more – there may be a new licence requirement for crypto services, especially in the wake of the FTX crash with investors wanting assurances that their money is not only safe but protected under the law.
While there should certainly be concerns about disruptions in any Australian market forecast for 2023, there are also ample opportunities for investors to come out on top if they align their strategy with evolving market conditions. You must conduct your own research and develop an investment roadmap that matches your risk tolerance and long-term ambitions.
This communication is general information and education purposes only and should not be taken as financial product advice, a personal recommendation, or an offer of, or solicitation to buy or sell, any financial product. It has been prepared without taking your objectives, financial situation or needs into account. Any references to past performance and future indications are not, and should not be taken as, a reliable indicator of future results. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication.