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Equities Marty Dropkin Ilga Haubelt Head of Equities, Asia Pacific Head of Equities, Europe Market uncertainty to remain high amid tighter policy We expect a high degree of volatility and uncertainty for global equities in 2023, as stubbornly high inflation and interest rate rises lead to a rough landing for large parts of the global economy. However, earnings expectations are diverging across different economies, allowing investors to capitalise on select opportunities. Markets continue to expect central banks (led by After the sharp sell-off spurred by the worsening the US Federal Reserve) to stop hiking at the first outlook and government missteps, there is a sign of inflation cooling, but there is a growing case for the UK equity market becoming an risk that by then it may be too late. The squeeze attractive hunting ground in 2023. While the UK on the consumer is already taking place and market has done better than most this year, some parts of the global economy are headed partly due to sector composition (with most large for recession or are already there. cap earnings derived from outside the UK), it remains relatively cheaply valued with a forward Regionally, Europe looks the most exposed. PE that is around 25 per cent below long-term Much depends on whether businesses and averages and close to 50 per cent cheaper than consumers can make their way through the the US. The large cap FTSE 100 index remains winter without blackouts that weaken demand primarily a play on the global economy and a and on how the Ukraine conflict develops from beneficiary of sterling weakness, while small here. Tail risks for stock markets remain and and mid-cap names tend to be more exposed a recession seems baked in, as the European to the domestic economy. The latter are unloved Central Bank ploughs ahead with rate rises at and could be beneficiaries of any positive a time when households are already suffering surprise on the economic front. from the surge in the cost of living. 11 Investment Outlook Fidelity International

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