Abrdn: ‘more pain in 2023 but M&A to support shares’

The “full pain” of the conditions that roiled global markets in 2022 will only be felt in 2023, with significantly slower GDP growth, while in the UK and Europe earnings expectations may have more than 10% to fall this year.

That’s according to a global outlook written by Andrew Millington, Head of Research & Investment Process, Equities, at Edinburgh-based investment giant Abrdn.

“A lot of the market pressures in 2022 – sky-high energy prices, the broader cost-of-living crisis, tax rises and rising-interest rates – have yet to exert their full impact …” wrote Millington.

“We expect significantly slower GDP growth in 2023 and, even now, the conversation with companies has shifted from supply-chain concerns to the impact of lower demand …

“Wage inflation is the most significant cost uncertainty for many companies.

“What’s more, aggregate market-level earnings forecasts for 2023 have yet to adequately reflect the likely slowdown in GDP growth.

“This is particularly the case in the UK and Europe where, we feel, earnings expectations may have more than 10% to fall next year.”

However, Millington said corporate activity is likely to provide support for share prices as both investors and companies start to see M&A and corporate buyback opportunities as a result of share-price declines.

“For example, mergers and acquisitions interest and investor activism remain particularly elevated in the UK,” wrote Millington.

“Both are the result of perceived value in the market.

“We’re seeing corporate buybacks continue in the developed markets. This activity is also increasing in parts of Asia, including China.

“Corporate cash conservatism – or hoarding cash reserves – hasn’t really started yet, except at those
companies that are already under financial stress.”