Challenges and opportunities for 2023

Citywire AA-rated portfolio managers, Yutaka Uda and Maiko Uda provide their views on the challenges and opportunities for 2023.

Fund Commentary
5 Dec 2022

Citywire AA-rated portfolio managers, Yutaka Uda and Maiko Uda provide their views on the challenges and opportunities for 2023.

What will be the biggest challenge for the year ahead?

The biggest challenge we foresee for 2023 will be a rise in long-term rates, coupled with an economic slowdown in the US. We believe that inflation in the US will continue to be in excess of 2%, contrary to what the market is hoping for, and may remain at 3-4%. When the FRB stops raising the short-term rate, annual inflation is likely to remain at a reasonably high level of 3-4% in our estimation, and therefore, the long-term rate will likely rise further to 4-5%. This will have a negative impact on the US economy and may result in increased volatility.

What do you think will be the biggest opportunity?

We believe the biggest opportunity in the year ahead will be a normalisation of economic activity in Japan.

Japan looks attractive from an investment standpoint due to the weak Yen, which is supporting the economy. We see a reversal in terms of the deflationary cycle in Japan, due to rising inflation and salaries. Against this backdrop, we expect to see a rise in Japanese long-term rates, moving towards 1.5%~2%, compared to today’s 0.25%.

In addition, we anticipate that global infrastructure investments will materialise to support the US and global economy. Banks and Industrials can benefit from this and rally as a result. Another opportunity is China, which we believe the global economy would support if the Chinese Government’s policy shifts from the current zero COVID policy to focusing on re-opening and normalisation.

What will be the most important trend in 2023?

Our expectation is that the most important trend in 2023 will be a shift from IT to infrastructure investments. We believe that demand for IT investments will slow and oversupply in the semiconductor markets will surface. By contrast, we expect global infrastructure investment to take over as a key driver of economic activity.

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As always, we invite investors and prospective investors, to contact us should they wish to understand our views on the current situation and the positions held in the portfolio. Please do not hesitate to contact us for further information.

Adam TurbervilleAdam Turberville
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The views and statements contained herein are those of Evarich Asset Management in their capacity as Investment Advisers to the Funds as of 02/12/2022 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.