A new beginning
A very happy new year from Origin8, we wish everyone a prosperous 2023. And to that end, we try to identify some economic scenarios for the upcoming 12 months.
1. ESG and its influence
ESG stands for: Environment, Social, and Governance. And this year we are likely to see an overall political commitment to COP27 and its environmental and wellbeing aims. This can manifest itself as commercial and funding incentives, such as electric cars, a consumer view of more socially responsible business and an increasing lens on corporate governance.
On top levels from how green or environmentally conscious a company might be, it also covers a vast spectrum from human rights to divesting from authoritarian regimes; so expect to see plenty of businesses banging the drum to espouse their ESG credentials. According to PwC, investors globally are expected to increase their ESG-related assets to US$33.9tn by 2026, from US$18.4tn in 2021.
2. Venture capital faces headwinds
Top tech startups with gargantuan valuations are likely to continue getting funded by VCs but everyone else should be more cautious, according to the industry estimates. Covid is still causing investors to change their strategy, meaning investors are looking for more stable companies to put money into.
Equally, investors are being more cautious about funding new companies, wth some investors pulling back on their investments in smaller firms or markets. But the venture capital industry is cyclical, so while it used to be a difficult way to make money, it has become a safe-ish bet due to pent up demand for new tech companies by VC investors and public stocks markets alike.
3. Outflows from China
China could be facing an exodus of sorts after years of essentially ruling manufacturing for the world. For example, Apple’s troubles at its Foxconn factory last year – involving labour disputes, covid lockdowns and a huge fall in iPhone and iPad production just before the festive season, has seen the tech company start looking to invest elsewhere for production facilities, especially in south Asia.
If such a trend continues, especially by household names, the country could face a crisis of investment and production for years to come, while alternative destinations, like India, could reap potential rewards,
4. Crypto transparency and greater regulations
After the implosion of FTX, Crypto markets are likely to continue to decline through the first half of 2023, but that is not necessarily a bad thing; but a case of normalising to a point that is rational. Experts say investors don’t want to “catch a falling knife”, so they are waiting for things to bottom out.
On the other hand, a move towards greater transparency and regulation by both the crypto world itself and by national governments means that the market has gone through a necessary era of correction, and will emerge stronger, safer and more lucrative. In October, the European Council approved the Markets in Crypto-Assets (MiCA) Regulation, one of the first attempts globally at comprehensive regulation of cryptocurrency markets.
5. Interest rates and property values
As well as global hikes in interest rates, the enduring presence of covid has seen cities sound the world empty out in the past three years. So what the next 12 months hold for property markets is likely a mixed bag. London for example has seen mortgages and rents rocket, and yet also witnesses literal auctions for new tenants due to a lack of housing stock – which is the exception, and which is the rule?
However, when it comes to buying and selling, continuing to use the UK as an example, experts predict prices will fall, but by how much is the source of some debate. Rightmove, for example, thinks values will drop by 2%, but Savills forecasts a fall of 10%. As a prelude to 2023, data from Halifax shows average prices fell by 2.3% in November, the largest monthly drop in 14 years.
6. Alternative payment systems
In addition to digital currencies and mobile payments, the rise of alternative payment methods has also accelerated. Alternative payment rails are payment methods that are alternatives to traditional bank transfers and credit cards. Alternative payment rails include e-wallets, peer-to-peer (P2P) payments, and prepaid cards.
Add to this, the rise in digital currencies, mobile payments – not fixed to national borders – and real-time FX platforms, and you have a scenario where borderless transactions are significantly expanding. According to a report by Mastercard, 63% of consumers send cross-border payments to financially support family and friends abroad, while 47% of small businesses are doing more international business than they were before the pandemic.
7. The acceleration for alternative energy
With energy shortages and price surges very much a reality after the Ukraine War, a cold winter and the tectonic plates of diplomacy ever shifting, never have recent announcements about advances in nuclear fusion, switches to solar and alternative energies and a general lowering of dependence on oil and gas, been more welcome
In the backdrop of the volatile energy market, organisations are thinking ahead and developing more environmentally conscious practices for 2023. Many are investing sustainable business measures with the goal of acting more responsibly and helping their respective governments to meet net zero targets. This can only be a positive development fo not only the environment but for innovation and enterprise in the sector.
8. Can the dollar remain strong?
In the past few months, the dollar has given back a chunk of its gains on signs that red-hot inflation was cooling and in anticipation that the Fed would slow the pace of rate hikes. The primary catalyst behind the dollar’s possible fall would be changing expectations around Fed policy in response to evidence that inflation has peaked. There is a trend among investors that the Fed will pause its interest rate increases before the second quarter, and begin lowering rates by the end of 2023.
However, in a poll of market strategists by Reuters, the consensus was that the dollar will rebound against most currencies over the coming months, with the growing threat of recession in the U.S. and elsewhere keeping it firm in 2023 through safe-haven flows. So while the mighty greenback may not rule as strongly as it did in 2022, it’s a brave investor who’d bet against it.