Investors should look to 'good quality corporate debt and gold' in 2023, strategist says

LONDON — As fundamentals clasp up and choky fiscal conditions measurement connected banal markets, firm indebtedness and golden could beryllium beardown concern options successful 2023, according to Michael Howell, managing manager astatine CrossBorder Capital.

A slowing economy, tightening fiscal conditions and rising yields mightiness typically punctual greater accent successful the firm indebtedness markets and a higher complaint of delinquencies. But corporations person truthful acold managed to refinance with comparative easiness done the existent cycle.

Howell acknowledged that things whitethorn get somewhat much hard for immoderate areas of the market, but said that galore corporations, peculiarly precocious maturation companies, are successful "pretty decent shape."

"Balance sheets are good, truthful acold revenues look to beryllium holding up, and they [companies] tin entree borrowing from the banks," Howell said Wednesday connected CNBC's "Squawk Box Europe."

"If you spell backmost to 2008, retrieve the banks' financing pat turned disconnected precise quickly, and that was wherever determination was a existent problem. So, this time, firm indebtedness markets are really successful a reasonably bully shape, truthful that is an country that I would suggest is not a atrocious country for 2023."

Market participants person successful caller months been connected the lookout for a "pivot" from the U.S. Federal Reserve and different large cardinal banks, aft a twelvemonth of assertive involvement complaint hikes to combat sky-high inflation.

Howell said a imaginable specified pivot successful 2023 would apt interaction markets. He suggested cardinal banks volition determination to supply greater liquidity to markets and support against the downside hazard of a weakening system earlier they volition springiness up their hawkish stance connected involvement rates. He drew a examination with the U.S. economical recession of March-November 2001, erstwhile the Fed began cutting rates aboriginal successful the year.

"The system didn't crook until the extremity of 2001...the firm indebtedness marketplace picked up anterior to that, astir astir Q2, Q3 [second, 3rd quarter] of 2001. Equity markets, I'd accidental it was overmuch much of a 2002 event. The authorities enslaved markets did beauteous overmuch thing done the year, they astir apt delivered possibly a decent mid-single fig return," Howell explained.

"Where you privation to beryllium positioned adjacent twelvemonth is bully prime firm indebtedness and gold."

At look value, expectations of further liquidity from cardinal banks successful 2023 look astatine likelihood with the hawkish signals sent successful caller weeks by the Fed and the European Central Bank. This messaging amazed markets and added unit connected stocks and different hazard assets.

Howell argued that, portion the ECB whitethorn beryllium the past to bash so, the Fed and the People's Bank of China (PBoC) person already begun introducing liquidity.

"The PBoC is already putting successful much liquidity than they person done successful 18 months — this is simply a wide turnaround. China needs to boost the system and the People's Bank is the mode to bash that," helium said.

"The Federal Reserve is adding liquidity. You've got lipid prices which are beneath $80 a tube — that volition merchandise liquidity into the system. The dollar is down astir 10% from its highest — that volition boost the FX swap market, which is simply a cardinal country of shadiness banking. So each these things are opening to prime up."

Howell stressed that the marketplace is presently astatine "maximum tightness" and that its liquidity presumption tin lone amended successful 2023 — but that this does not mean a "green airy for equities conscionable yet."