Kikis Lagos: Markets could prove more resilient this year than in 2022

Kikis Lagos, Managing Director of One Plus Capital Ltd, explains how the turbulence of 2022 weighs on the future but this does not necessarily mean weaker financial markets. On the contrary, it could be a chance for them to exhibit their resilience.

2022 has been described as one of the worst years on record for equities. Why was this?

A combination of unprecedented events in 2022 weakened asset prices across all markets. Rarely have investors had to cope with the kind of lessons imparted by a global economy just starting to emerge from a pandemic, while dealing with unprecedented monetary policy measures and a major war right on the doorstep of Europe.

How would you describe the investment outlook for equities in 2023?

The turbulence of 2022 weighs heavily on our investment outlook for 2023, with implications ranging from economic growth, inflation, central bank policy and interest rates to credit quality, valuations, investor sentiment and other key metrics. Policymakers, at least in the US and Europe, now appear resigned to weaker economic growth in 2023. Any recession is, however, likely to be short-lived but it will not be painless. The combination of lower growth, lingering inflation and public spending constraints will be difficult for people and governments alike. Social inequality could become a topic of immediate and growing importance.

What kind of returns can be expected in 2023?

Slower economic growth in 2023 will not necessarily mean weaker financial markets. In fact, the markets could prove more resilient in the coming year than they were in 2022. Market volatility in 2022 was exacerbated by external events and changing expectations around the likely size and speed of monetary policy tightening, in the face of high and persistent inflation. Moreover, we expect 2023 to be a positive year for global equities as, despite some volatility, normality should return to the financial markets.

What kind of shares are of most interest to investors?

We see increased interest in actively managed ETFs, as these provide a diversified exposure to the underlying Index or sector they follow. Regarding sectors, we have seen increased interest in Financials, Consumer Staples and Automobiles. Tech stocks have seen reduced interest, following their popularity in recent years, due to lower earnings and profit potential.

Are investors in equities more interested in capital appreciation or in dividends?

In turbulent times with negative market returns, investors seek refuge in high dividend stocks with less attention paid to capital growth. As markets begin to stabilise and show positive returns, they pay more attention to capital appreciation and less to dividends. We believe that a combination of both is the appropriate allocation in a balanced portfolio, bearing in mind the investor’s time horizon and risk appetite.

Which shares are best for dividends?

The best dividend stocks are not necessarily the highest dividend stocks. Many companies cut their dividends last year, as they were trying to save money and deal with the situation. Thus, we prefer stocks with a stable dividend, even if it is not the highest one. Sectors like Utilities and Telecom have a stable source of revenue and they can protect themselves better during a recession. Companies from these sectors are better dividend stocks. On the contrary, banks had bigger dividend yields before the crisis but they rushed to cut them when things went south.

What is your view of the ongoing efforts to privatize the Cyprus Stock Exchange as part of its strategic development plan?

While still suffering from the stain on its reputation caused by the burst bubble of 20 years ago, the Cyprus Stock Exchange (CSE) in now one step closer to finding a strategic partner to boost its attractiveness. We support this new development and hope that it will lead to the fulfilment of the CSE’s role in the further development of local companies, through the raising of capital, as well as attracting more foreign investment.

Can you name 10 global companies whose shares you expect to do well in 2023?

Even though forecasting is a dangerous affair, I believe the following ten will fare well in the coming year: Airbus SE, Amgen Inc, ASML Holdings, Walt Disney Co, LVMH Moet Hennessy Louis Vuitton, Meta Platforms Inc, Microsoft Corp, Netflix Inc, Porsche AG and SAP SE.

(This interview first appeared in the February 2023 issue of GOLD magazine. Click here to view it.)