As last weekend the world said goodbye to 2022, a fresh year is ahead of us. Time to make a new start with hopes and dreams. Last year was far out one of the toughest years for investors worldwide. Inflation, uncertainty and volatility took their share. As the world of finance continues to evolve with ever-changing financial markets, investors globally cast an expectant look to the future. With 2023 marking a new era of uncertainty, what can investors do to move forward? As it made a good start, this week we take the European stock market into a deep dive and look forward into the possible economic paths.

The opening and closure on the first of January

Monday started off pretty surprising as it showed some stocks rising in value. It was a glance of hope after a long time of uncertain volatility. Stock indices like the British FTSE opened positively, as others like the German DAX and French CAC 40 lost dozens of points. The European stock market closed a lot higher then with which it started. With Wall Street and the London market still closed, the trading flow stayed thin.

Looking at the stock type that rose and fell, there are some lines to mention. Stocks regarding to car companies rose in value, as is the same for property and financials. As the Asian stock market closed in green, still there is an economic decline visible in which investors are still hesitant. Not only the Asian market, but Wall Street US 500 as well showed a little growth after one of the toughest years since 2008 where people made comparisons with the crash of ’87.

Current situation

This divided starting signal can be linked to multiple factors. We have political instability and economic uncertainty, which have caused many investors to lose faith in the market, but they are very curious and willing as well. Banks tightened the knot to battle the rising inflation numbers, which resulted in rising interest rates.

Las Olsen, Chief Economist at Danske Bank mentioned that “the new year begins with a continued focus on central banks and inflation, as well as signals of how long and deep a potential recession could be.” ING Netherlands agrees as “central banks continue to set the financial mood.”

The Governing Council at European Central Bank states that “interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target.” The European Central Bank is expected to announce new stimulus measures in order to boost the economy in the first half of this year.

Interest rates still high to battle inflation, eyes on the second half

The energy crisis began with the Russian invasion in Ukraine. Inflation levels then peeked at the end of autumn. Still economic growth in Europe is forecasted to improve in 2023 as several large companies are planning on expanding their operations in Europe and government deals are made. The Euro is expected to strengthen against other major currencies. These insights suggest that the European stock market could be poised for a rebound. However, it is important to remember that no one can predict the future with 100% accuracy. Therefore, investors should still exercise caution when investing in the stock market.

The hawkish commentary of central banks is expected to end as they ought to be less ‘hawky’ and more of an ever watcher in the corner. “Their inflation rate hike is expected or hoped to stop in the second half of 2023,” says Anupam Kumar, Chief Investment Officer (CIO) at DHF Capital S.A. “The market is in an oversold zone and most of the big stocks are close to its 52-week lows, so even small news or a positive boost can push the market higher. As European countries managed the energy crisis this winter, it should be under control before next winter. That makes energy prices less of a threat.”

DHF Capital S.A. always keeps a close eye on the market

DHF Capital S.A. not only believes in the highest profit, but the constant check on the risk as well. It is a challenge in which the company thrives. DHF Capital S.A. works with efficient risk management software. In light of this, drawdowns are always in-check and can never go beyond -10%. Kumar: “Diversification is the key, even when one of our asset class is in negative or provides low returns, we cover it with other asset classes returns like equities, forex or commodities. We do not rely and expose ourselves in one market and one particular asset class.”

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