Written by Tui Eruera, CEO and Founder of Jaaims
Published 20 December 2022
As we flip the calendar to 2023, the Jaaims team looks at the key issues set to shape asset markets in the New Year.
Predictions are always just that – forecasts based on what we know now. But as we head into 2023, the signs all point to five key events impacting investment markets.
Here’s what investors need to mark in their diaries for 2023.
- Gold will rally
2023 is likely to be the year that gold tears through the $US2,500 per ounce barrier, marking a 40% rise from the current price of $US1,780.
Our view is that central banks will struggle to contain inflation – something that has traditionally been a catalyst for gold to spike but has left pundits waiting to date. I anticipate China pivots away from its zero-COVID strategy in 2023 which will rejuvenate its economy and apply upward pressure on commodity prices, fueling inflation further.
Gold won’t be the only beneficiary of high inflation. Gold-related stocks will also be loved by investors.
- Fierce regulation will hit crypto
The collapse of cryptocurrency exchange FTX, and the arrest of its wunderkind former CEO Sam Bankman-Fried, will have significant fallout, driving further collapses possibly across multiple crypto companies.
The US Federal Reserve will be forced to step in – and it’s likely to come down hard on the sector.
Our view is that crypto staking, the process of locking up crypto holdings in order to obtain rewards through token generation, will be viewed by regulators as a Ponzi scheme and therefore deemed illegal. Furthermore, any platform which holds customers’ assets will be required to hold assets one-for-one causing turmoil amongst the industry.
The fallout will be widespread, Bitcoin will fall to below $US10,000 – almost half its value in late 2022, and a fraction of its peak of $US65,000 in November 2021.
- The Great Resignation morphs into the Great Optimisation
At the start of 2022, we predicted the Great Resignation would be a fizzer. Were we right? Yes.
Data from the Australian Bureau of Statistics [1] shows that in the year to February 2022, 1.3 million people changed jobs, equal to a job mobility rate of 9.5%. Sure, that’s the highest mobility rate since 2012. However, as the graph below shows it pales in comparison with the rate of almost 20% reported by the ABS in the last 1980s.
| Employed people who changed their job during the year |
 |
Rather than a Great Resignation, we see 2023 kick-starting the Great Optimisation – a trend of employers trimming their workforces.
Elon Musk’s takeover of Twitter has demonstrated that it’s possible to halve staff numbers and still have a functioning company with considerably lower costs.
We’re already seeing the Great Optimisation underway in the tech sector (though not on the same scale as Twitter), and it will spread to other sectors as business leaders embrace automation as a means of maintaining output while slashing costs.
- Residential property values fall 30% peak to trough
2023 is likely to bring a lot more pain than gain to Australia’s housing market.
The latest data from CoreLogic [2] isn’t pretty. Over the 3 months to 15 December, Australian house prices have been falling at a 13% annual rate, with the Brisbane market leading the way and crashing at a 19.6% annualised rate. I predict this isn’t slowing anytime soon and price falls could potentially reach 30% top to bottom once the cycle completes.
The Reserve Bank’s relentless rollout of rate hikes in 2022 will continue in the New Year as the central bank struggles to curb inflation. The cash rate could peak at 3.75-4.5%, hitting the mortgage belt hard, and as the world (with the possible exception of Australia) falls into recession, money will dry up globally, capping overseas investment in the local property market.
- The Albanese government is forced to embrace coal
Since the beginning of the pandemic, the price of coal has surged from around $US60 per metric tonne to over $US400 at the end of 2022 [3], eclipsing all other past highs over the past 25 years.
As a top producer of coal, Australia is a beneficiary of strong demand from Asia, and also Europe as the region diversifies its energy sources away from Russia.
| Price of coal per tonne ($US) |
 |
| Source: Trading Economics |
Trading Economics estimates coal will be trading at $US485 in 12 months’ time [4], and the combination of soaring demand and high prices will make coal a key contributor to Australia’s export earnings, adding $120 billion to the economy in 2022-23 [5].
Like it or loathe it, coal will be the resource that brings the Federal Budget into surplus and pulls Australia through a global recession.
Fossil fuels may be seen as sin stocks, but they’ll provide ample opportunities for investors in 2023.
Overall, 2023 looks set to be a softer year for equities. That said, the maxim ‘money is made when you buy, not when you sell’ will ensure investors with a long term outlook have plenty of scope to set themselves up for future gains.
[1] https://www.abs.gov.au/statistics/labour/jobs/job-mobility/latest-release#:~:text=During%20the%20year%20ending%20February,left%20or%20lost%20a%20job.
[2] https://www.corelogic.com.au/our-data/corelogic-indices
[3] https://tradingeconomics.com/commodity/coal
[4] https://tradingeconomics.com/commodity/coal
[5] https://www.industry.gov.au/news/australias-resource-and-energy-exports-forecast-reach-450-billion#:~:text=Despite%20falling%20export%20volumes%2C%20earnings,%24120%20billion%20in%202022%E2%80%93%E2%80%8D23
*Any advice provided is general in nature and does not take into account the viewer’s specific needs and circumstances. You should consider your own financial position, objectives and requirements to determine the type of advice and products to best suit your needs. Jaaims Australia is an Authorised Representative of Jaaims Technologies, AFSL 519985.