12 Dec 2022 2 min read

2023 outlook: when might the clouds dissipate?

By Sonja Laud

This past year has been one of the worst periods on record for investors. We assess what could signal a turnaround in 2023.


This time last year, we noted that 2022 could well form a turning point for the global economy and markets.

With hindsight, “turning point” was a serious understatement of the dramatic shifts that have convulsed the investment landscape this year.

Many asset classes are in the red, as at the time of writing, with typical equity-bond correlations breaking down. The context: rampant inflation, stoked by geopolitical conflict, which in turn has hastened the retreat by central banks from one of the most benign environments for monetary policy in decades.

With much of the world economy sliding into recession, and higher rates continuing to bear down on relative valuation levels, we believe investors should gird themselves for returns that are subdued at best. We also expect market volatility to remain heightened.

Within this grim context, the most pressing questions are: How bad might things get? And what could signal a turnaround?

In our CIO 2023 outlook, teams from across LGIM offer answers for a variety of investment capabilities and asset classes.

We suggest that:

  • Equities may reach new lows, before recovering later in 2023 as inflation is tamed
  • Bond investors can now access income of which they could only recently dream
  • Pandemic-era developments should bolster IG and HY bonds in a downturn
  • Further growth is likely in clean energy, cyber security and photonics

In addition, we discuss how a focus on liquidity in real estate equity and private credit may have overshadowed some important opportunities, and how defined benefit pension schemes can navigate a thorny investment landscape – and prepare themselves for buyout.

Peak inflation, peak rates

Clearly, 2022 has been one of the worst years on record for investors. And yet despite the justifiable bearishness with which markets have greeted the numerous shocks suffered, we believe they have in some instances overreacted.

This creates an interesting opportunity set for investors in 2023, even as the clouds over the investment landscape are unlikely to dissipate until there’s greater clarity around peak inflation – and peak rates – and the trajectory of the Ukraine-Russia conflict.

This past year has also demonstrated the importance of energy to the global economy. Energy security and decarbonisation are inextricably linked, in our view, as we argued in our recent publication To COP and beyond.

Next year, the battle against climate change will continue.

LGIM’s representatives at COP27 speak of the tremendous energy they felt at Sharm El-Sheikh among the other participants, with whom they shared a sense of real urgency. We need to harness that energy to avert the worst climate outcomes and seize the opportunities, before it’s too late.

This text is an extract from our CIO 2023 outlook.

Sonja Laud

Chief Investment Officer

Sonja is CIO of LGIM, having joined the business in January 2019 as Deputy CIO with responsibility for LGIM’s Solutions, Global Fixed Income, and Active Equity teams. Sonja joined from Fidelity International where she held the title of Head of Equity, responsible for the Global, Equity Income and UK Portfolio Managers as well as the Investment Director team.

Sonja Laud