NatWest Invest

Investment Outlook 2023

What happened last year?

A rare series of unfortunate events

From Russia’s invasion of Ukraine to China’s zero-Covid policy, UK government shake-ups to the collapse of one of the largest cryptocurrency exchanges, this year was full of twists and turns. And they all played a role in creating uncertainty in financial markets.

Tackling rising inflation

Many central banks, including in the US and UK, have raised interest rates to try and calm the rising cost of goods. With rates at a decade-long high, inflation in the US and UK appears to have peaked, but remains at high levels.

Almost nowhere to hide

For investors, these events meant most investments had a tough 2022. However because the pound depreciated, particularly against the US dollar, investors in sterling experienced lower losses on their unhedged international equity investments. But at the same time, the rapid interest rate hikes by the Bank of England led to losses for UK bonds (as yields go up, prices go down). 

What we’re monitoring for the year ahead

The US: Economic slowdown

The US Federal Reserve raised interest rates to 4.5% in 2022 to tackle rising prices. While this seems to have cooled inflation, it could see house prices in the States fall this year, and a drop in how much people spend.

The UK: Economic tightrope

The UK’s still trying to bring down inflation despite raising interest rates. For this year, its central bank the Bank of England will have to find a balance between keeping the housing market steady, which impacts the economy, while stabilising rising prices.

Keeping business as usual

Businesses in Europe and the US are likely to face some tough challenges this year – rising costs chief among them. And it’s the customer who’ll probably have to pay the price (pun intended).

Europe – European companies rely heavily on international business – with two-thirds of their revenue coming from overseas. As prices rise, these businesses need to make sure they’re still profitable. The challenge they’re likely to face is raising their prices enough to remain profitable without scaring customers away.

US – The US market is also feeling the squeeze on rising costs. But the country’s most impacted sector is without doubt technology. Tech companies make up a large part of America’s stock market, and they’ve seen demand for their products drop as people return to the office and downgrade their working-from-home setup.

Also, the US dollar has strengthened this year, which is a bad thing if you convert the money you make overseas back into dollars. It makes those profits worth less. And more than half of the tech sector’s revenues come from overseas, causing another dent in their profits.

What to watch out for in 2023

The year ahead will likely have some challenging times in store. But the slowing of economies and fall in earnings for businesses could still create opportunities for investors. 

US Government bonds

We could see interest rates come back down in the US, many think they’ve already peaked. This would lower the yield investors get from bonds. And when bond yields go down, prices go up. We’ve seen before that government bonds perform well during a recession, which could be on the cards in 2023.

Emerging market stocks

The value of the US dollar went up in 2022 which was bad news for emerging markets because they usually have to import a lot of goods and pay in dollars. But as a US recession could be likely this year, the dollar could weaken, benefitting emerging market companies.

Small cap equities

While smaller companies usually struggle during recessions, they can perform their best when economies recover. It’s hard to work out how long a recession will last, but small caps could recover well when the economy does.

Investing in positive change

In 2022, Coutts, which manages your investments, pointed its investments firmly toward achieving Net Zero (Net zero means achieving a balance between the greenhouse gases put into the atmosphere and those taken out). This means they’re investing in companies and funds that are working to achieve Net Zero. By 2050, they plan to achieve net zero emissions across all their investments.

Get started on your investment path in 2023

We’ve created NatWest Invest to make investing online easy. Start investing from £50. 

Already an investor? 

Track existing investments and explore opportunities for 2023.

Anything else we can help you with?