Earnings are expected to rise 16% this year due to stronger energy prices and (so far) resilient consumers. A key concern for investors is whether central banks can remove liquidity to temper inflation without tipping the economy into a recession.
Corporate earnings are likely to come under pressure as the slowdown in housing and the lagged effects of high inflation, energy prices and interest rates work their way through the system.
The European economy and financial markets have been defined this year by spiking inflation, rising interest rates and bond yields, and a strong U.S. dollar. While none of these developments are particularly helpful for equity markets, it seems that we may be through the worst of it.
A synchronized global-growth downturn appears to be underway and the slowdown could short-circuit Asia’s economic recovery starting in the current quarter.
Longer-term developments that could create the next upswing in emerging markets include a further acceleration in intra-Asian trade, India’s urbanization and the expansion of financial services across larger segments of the population.
Global growth faces a variety of challenges including rising interest rates, high inflation and a struggling Chinese economy. Uncertainty is elevated and financial markets have been extremely volatile, but the significant adjustment in asset prices this year has diminished valuation risk and boosted return potential for investors as we enter 2023.