17-Apr-23 Macro

CIO View Special

10 themes for the year ahead

Björn Jesch

Björn Jesch

Global Chief Investment Officer

Every once in a while, financial-market participants put out lists of their key investment themes, many of which tend to be quietly forgotten amidst “unforeseen” surprises. Take the collapse of a certain Silicon Valley bank few outside the start-up world had heard of a few weeks ago. The specifics may be novel, but the underlying fragility in banking highlights perennial concerns.[1]

To be clear, you cannot foresee the future, partly because at any given point in time, many futures are possible.[2] But you can prepare for possible futures and focus limited resources on causal mechanisms behind what might unfold. At the macro-level, that might mean paying attention to the risks being taken in anticipation of interest rates never moving upwards.

This sort of work takes discipline and humility. When money is easy, everyone can be a winner for long stretches of time. But as an old adage has it: “If you're playing poker for a while and you look around the table and can't tell who the patsy is, it's probably you.”[3] Any investor will sometimes take what retrospectively turned out to be unwarranted risks, without fully understanding everything that might possibly go wrong. The key is to learn from them. Take recent market turmoil. As often happens, troubles in one corner of finance – in this case of midsize U.S. banks – had far reaching repercussions, including a venerable Swiss bank being taken over. The direct causes and consequences might have been difficult to foresee, but the underlying mechanics were not.

For a fiduciary institution, it is essential to keep track of forecasting accuracy and analyze not just what happened but what could have happened. In that regard, putting together a top 10 of themes can be helpful. Part of the point is that it creates opportunities to learn, precisely when events surprise or assumptions turn out to be mistaken. As the psychologist Daniel Kahnemann is fond of saying: “Our comforting conviction that the world makes sense rests on a secure foundation: our almost unlimited ability to ignore our ignorance.”[4] Making thematic predictions and tracking forecasting accuracy can be a useful way to test this seemingly secure but dangerous foundation.

In that spirit, this Special contains five pieces highlighting market segments we currently see as especially attractive (European high-yield bonds, European small and mid-cap equities, emerging-market equities) and worth watching in 2023 (global infrastructure and real estate). The remaining five are a potpourri of underlying trends likely to re-shape investing for years to come. We look at Europe’s energy and digital transformation and the likely resulting shift in the continent’s economic geography; as well artificial intelligence, understanding Japanification better and the future of globalization. As for banking and global macro-economics, we continue to think that tighter financial conditions are exactly what is needed. The recent turmoil will lead bankers and investors to belatedly take mitigating measures, but probably with limited macro-economic fallout.

Find more themes here

Generative AI – a new iPhone moment in tech?

After a short break, the IT sector is on the rise again in 2023, not least thanks to Generative AI
Read more

Innovative clusters – northern lights, transforming Europe

Largely unnoticed by many investors, innovative clusters are emerging, beyond Europe’s old industrial belts
Read more

Deglobalization – rather diversified globalization

Brexit, Trump, Covid-19 and Putin’s war on Ukraine came as shocks. The end of globalization? Probably not
Read more

Aging societies – the end of “Japanification”

“Japanification” = shorthand for countries with persisting low inflation and yields, but the comparisons fall short
Read more

European Transformation – finally, Europe gets a makeover

Europe is embracing digitalization and renewable energy – This will require substantial investments
Read more

European small-caps – time to shine

“Big was beautiful” in the U.S. – European stocks chased U.S. big caps for the longest time
Read more

Emerging-markets equities – time to revisit

Remain relatively cheap, investors stay cautious – wrongly so, as we believe
Read more

Global infrastructure assets – a more nuanced outlook

In a challenging operating environment, selection and thorough bottom-up research remain crucial
Read more

European high yield – enough meat on the bones

Emerged as relative winners in the fixed-income segment – and we believe they can still deliver
Read more

Global real estate – how to find value

As prices adjust, many areas of the global real estate market are looking increasingly attractive
Read more

1. See, in particular: https://www.nber.org/papers/w31048 

2. Deutsch, D. (1997), The Fabric of Reality, Penguin

3. Sometimes labeled an “old saying” and sometimes attributed to Warren Buffett. See: Quote Investigator®

4. Kahneman, D. (2011), Thinking, Fast and Slow, Farrar, Straus and Giroux, p. 201

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