People often ask me how we choose our themes of the year ahead. It is not a hard science, but there is a framework we use. It starts by asking the following question: “What policies and developments in the economic, business, and political world are unsustainable, and what will it take for them to become sustainable?”.

Neither the Fed nor China are likely to announce a full pivot of their interest rate and covid policies. Rather, both will likely embark on a ‘soft pivot’. This will likely take the shape of an increased tolerance against a backdrop of tough talk and the actions of both countries may end up help the other.

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For the first time in the 21st century there are no elections scheduled in G7 countries in 2023. That may bring some stability to politics. Incentives are there in favour of stability particularly as the UK’s gilt crisis in 2022 rammed home the costs of instability.

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Countries broke new ground in the types of economic weapons they deployed in 2022. Next year, this may escalate further. These could include new multi-country buyer cartels, the supply of rare earth metals and other green transition commodities and the adoption of digital currencies.

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US bans on certain exports for advanced computing mean a decoupling in the chip industry is imminent. That will likely affect all points in the complex global supply chain for semiconductors which, until recently, was very globally integrated.

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Tech stocks may become value investments but it likely won’t be a single sector that replaces them as growth stocks. Rather, it will be companies that cross sectors but fit into certain themes, including resilience to a multipolar world, energy productivity, and higher rates.

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The terrible returns of 60/40 portfolios in 2022 revealed that risk and exposure are two different things. As investors rebuild in 2023 and ponder the change in correlations, the composition of portfolios is likely to change.

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As house prices begin to drop, the US is in a better position compared with other parts of the developed world due to the structure of its financing markets and balance sheet. Other countries are less ready to withstand a property shock.

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After food prices skyrocketed in 2022, Ag-tech jumped into the spotlight as a potential solution for food security. It has come at just the right time as the technological infrastructure in emerging markets has developed to the point that makes precision farming possible.

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Two big cyber events during 2022 showed how corporates are increasingly being punished for cyber attacks against them. It is quickly becoming a political issue, just as the trend to WFH can increase the chance of an attack.

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Although multiple recessions are forecast for 2023, it is worth asking when markets will begin to price in good news. That is particularly the case as markets can move very quickly when investors have such low risk positioning.

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