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Risk aversion prevails among investors

According to research, investors concluded 2022 with a broadly neutral attitude toward markets, but global uncertainties could damage their confidence.

According to Qontigo's ROOF study of market sentiment, a "hard landing" is currently expected across Europe. At the same time, the United States is predicted to experience a brief recession in the first half of the year, followed by a robust rebound.

However, Qontigo pointed out that this forecast is predicated on the assumption that inflation has peaked, with central banks becoming more supportive in the second half of 2023.

Furthermore, the firm predicts that financial markets will be able to avert the spread of a looming credit default catastrophe in high-yield bonds and cryptocurrencies. As a result, initiatives for 2023 will essentially follow the template established in the second half of 2022.

According to the business, risk-averse strategies beat risk-tolerant ones in 2022, and current sentiment scores indicate that investors are starting the year in a risk-neutral state of mind.

“A neutral sentiment means a lower potential for misplaced emotional response to risk-events in the near term,” Qontigo said.

Worries over the global macroeconomic background dampened traditional end-of-year exuberance. As a result, investors are benefiting from a "good yield for staying on the sidelines" by shifting to defensive assets, which have outperformed the market over the last two years.

"Markets may not receive the same level of bargain-hunting support that they have in the past," according to Qontigo's study. These headwinds are already influencing portfolio construction decisions.

Cash and uncorrelated assets will remain an important component of multi-asset portfolios until volatility diminishes, according to Henk-Jan Rikkerink, global head of solutions and multi-asset at Fidelity International, with defensive posture poised to be a key theme of early-year investment.

He said less correlated exposures will be vital over the coming year, with investors seeking “wider sources of diversification and risk, where investors will be forced to look beyond traditional assets to deliver outcomes over the long term.”



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