Editorial 6 | 7 A time for prudence Reset is the new reality Michael Strobaek Nannette Hechler-Fayd’herbe Philipp Lisibach Global Chief Investment Officer Head of Global Economics & Research Head of Global Investment Strategy Credit Suisse Credit Suisse Credit Suisse If 2022 confronted investors with stiff headwinds, All the while, growth has been slowing, with the The “Great Transition” that we foresaw for 2022 has Which leads us to the outlook for 2023: we believe 2023 is likely to be challenging as well. After all, Eurozone and UK even likely to have slipped into played out to a much greater extent than we the global economy has undergone a fundamental financial conditions are all but certain to remain tight recession. originally envisioned, resulting in a new reality. and lasting reset due to the COVID-19 pandemic, and the fundamental reset of macroeconomics and shifting demographics, climate change, weakening geopolitics is continuing. Investors would thus do Looking ahead, we expect financial market volatility Over the past year, geopolitics has made a come- business investment in the wake of geopolitical well to adhere to a robust investment process and to remain elevated as risks persist and global back as a key driver of the global economy. The ruptures, among other trends. The fallout is evident diversify investments broadly, particularly as the financial conditions remain tight. This is likely to confrontation between the West and Russia over in our longer-term forecasts for the global economy, transition out of negative rates is behind us. Our create continued headwinds to growth and, by Ukraine has triggered an energy crisis as well as which we expect will grow at a much slower pace House View provides a valuable compass in this extension, risk assets. Nevertheless, investors can soaring food prices. than in the 2010–2019 period. Inflation will remain regard. find opportunities, particularly in fixed income, as we an issue in 2023, though we expect it to eventually show in this year’s Investment Outlook. Far from normalizing, international commerce has peak and start to decline. The year 2022 presented investors with a particular- reorganized according to political alliances, marking ly difficult environment. Inflation was a concern I believe that recent months have clearly reiterated the dawn of a multipolar world. As for financial markets, as inflation peaks and going into the year, and the onset of the war in the importance of adhering to robust investment monetary policy reaches restrictive territory, fixed Ukraine drove price levels up further. In response, principles, following a stringent investment process This has resulted in a new economic reality with income should become more attractive again. This central banks, first and foremost the US Federal aligned with one’s long-term financial objectives and more elevated inflation and a monetary policy regime means that the performance of bonds and equities Reserve, brought forward rate hikes and have all but seeking broad diversification, including alternative prioritizing inflation stability over growth. As a result, should again diverge, as we expect equity markets demonstrated their determination to bring inflation investments. Preserving wealth is our singular focus, interest rates are at their highest in years and could still be volatile in the first half of 2023 as down by tightening monetary policy aggressively. and we remain fully committed to this goal as the economic growth is slowing. slower economic growth hits company earnings. Indeed, they will not be able to slow the pace of rate fundamental reset continues. hikes before realized inflation falls persistently. Financial markets could not evade these develop- We hope you find the insights in our Investment ments, with equities and bonds firmly in negative Outlook 2023 useful, as you navigate and adjust to territory in 2022. Bonds were unable to act as an this reset. effective source of diversification within portfolios (their traditional role), as there was a stronger correlation between the two asset classes due to the turbulent macroeconomic environment and tighter monetary policy regime.