The crisis year 2022 is coming to an end. The stock market forecasts for the next year are anything but optimistic. Nevertheless, there are some bright spots for the stock market year 2023.

“Black” seems to be the new color of fashion for stock market analysts. It is true that we do not live in a cheerfully colorful world and the crises that surround us will not quickly resolve themselves. But to ignore every bright spot with blinders on or to transfer the fateful year 2022 one-to-one to 2023 is also wrong. A big plus point for the stock exchanges in 2023 is the low expectations of investors.

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In 2022, the Fed and ECB gave investors a nasty interest rate hangover. After all, this tomcat or this cat is now out of the bag. The interest devil is large and unmistakably painted on the stock market wall. But how diabolical is it going to be for stocks?

Robert Halver heads capital market analysis at Baader Bank.

Inflation is falling, melting like snow in spring, so to speak. Spring is a good cue. In the first quarter of 2023, the US Federal Reserve is approaching its key interest rate peak. Because with every additional dose of interest, the debt-loving American becomes economically ill.

And the ECB? The dovecote does not become a real falconry. Because she basically cannot get out of her role as a dove, i.e. caretaker and preserver of Europe. Her strategy for this is: The way is the goal. With the reference to improved inflation trends, it is given legroom to continue its absolution for sinful states. The price for this will also be paid in 2023 by savers, who will have nothing left of their nominally higher interest rates after inflation.

However, at first glance, the Bank of Japan (BoJ) no longer seems to be the last mohican among central banks to stick to the most lavish monetary policy. In the future, yields on 10-year government bonds should no longer fluctuate between minus 0.25 percent and 0.25 percent, but within a range of minus 0.5 percent to 0.5 percent.

Now the market seems afraid this is the start of a passionate tightening of Japan’s interest rate and liquidity reins. If this were to happen, not only the financial markets in Japan (Urbi) but also the world (Orbi) would be negatively affected. Because the land of the rising sun was the world’s temple of credit for countless years. Through so-called yen carry trades, whole seas of liquidity were borrowed in Japan at low interest rates and currencies and invested in higher-yielding foreign bonds and stocks.

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And indeed, if the Japanese yen appreciated significantly in the future due to interest rate increases, not only large Japanese investors would bring their enormous foreign investments home in order to secure their foreign profits or to avoid losses. International investors would also be quick to close out their counter-financing, which was becoming too expensive, by throwing off the global investments in bonds, stocks and real estate that were made with it like sandbags from a sinking hot-air balloon.

The woes for technology stocks could worsen as the cost of capital rises, leading to further falling demand for hardware, software and semiconductors.

But how badly will the Japanese financial Eldorado dry up? There is no question that Japan’s high inflation can no longer be denied, even with substantial consumption of sake. A certain tightening of monetary policy, which also moderates the imported commodity inflation via a more stable yen, is absolutely justified.

However, a consistent turnaround is not to be expected. Investors, hear the signals: The BoJ itself is talking about inflation slowing in 2023. And there can be no talk of abolishing yield curve control. The BoJ has decided to increase bond purchases by a good 20 percent in the first quarter of 2023 and intends to keep the key interest rate at minus 0.1 percent for the time being.

In general, the train for the BoJ to pursue a truly stability-oriented monetary policy has left. Japan has long since reached the point of no return. The country is so indebted that southern European national budgets are bastions of stability in comparison. Massive Japanese rate hikes and liquidity pulls would be hara-kiri for debt sustainability. The fact that more than half of all Japanese government securities are owned by the BoJ speaks volumes.

If this is how the expulsion from the (interest) paradise looks like, Adam would not have just bitten into the apple, he would have eaten all the apples from the fruit basket.

It will definitely not be an economic miracle year. But the thickest recession sweater in the closet is not necessary either. Because ifo business expectations do not lie. After a steep fall, the confidence of companies with a focus on industry and export is clearly increasing again. They are pleased that exogenous shocks such as scarce raw materials and supply bottlenecks are becoming less explosive. In this way, they can process the high order backlog better and better and – very importantly – finally write invoices. And what would happen if China, which is relevant to the global economy, opened its Covid doors as consistently as a child opens its Advent calendar just before Christmas? Confidence in Chinese and Asian equities would revitalize. Especially export-sensitive and cyclical stocks from Germany would be delighted.

And if the world economy falls into a deeper global hole, for example because the corona infections explode in China? Then the stock markets would claim their life insurance.

Commodity prices would fall and inflation would be over. And if the US economy were to weaken excessively, this would be the monetary policy game changer: The data dependency repeatedly cited by Fed President Powell would quickly turn the need to keep monetary conditions restrictive into the need to provide liquidity again at low interest rates in order to to prevent a hard economic landing.

Initially, confidence in equities will probably remain subdued. But because expectations are low, more and more good price opportunities are growing with more and more positive news.

Black swans cannot be ruled out in 2023. But we investors should not make the mistake of ignoring the white ones.

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