All things considered, the financial markets are off to a decent start to 2023


Updated on 15 March 2023 at 12:30

After a positive start of the year on the financial markets, returns have gone down a bit in March. However, pension savings returns are still positive in 2023.

January showed the best collective opening for stocks and bonds since the mid-nineties. The positive atmosphere among investors was supported by several factors:

Reopening of China

Reopening of China: The reopening is expected to boost China’s growth significantly, and this is further supported by the effect of withheld consumption from the service sector in particular being released.

Lower energy prices

Lower energy prices: The European recession fear has been challenged by the drop in energy prices, and the mood among consumers and companies have improved, which will help the economy.

Economic data look positive

Economic data look positive: In the beginning of the year, US showed poor economic data, and this was interpreted as a sign that the central bank of the United States was about to lower interest rates.


However, in February, the atmosphere has been less positive, and returns on bonds have been negative while stocks have lost some of the profit from the beginning of the year. The change came as the attention once again went to further monetary tightening. The recent strong US economic data have brought an expectation that the central bank of the United States will have to continue increasing interest rates to knock down inflation. The same is true for Europe, where an increase in interest rates is also expected.

The rising interest rates from February continued in March until the bankruptcy of Silicon Valley Bank hit in the weekend on 11 March. The problems concern operations of some of the regional banks in the US, as they are a little less regulated than the big banks. In Velliv, we do not expect that these problems will spread to the big banks in the US or the European banks, which are all better prepared. Despite the big market fluctuations in the days following the bankruptcy, pension portfolio returns are still in positive territory.


Expectations for the remainder of the year

Our most important focus points are still whether the recession is coming, what the extent of it will be, how fast the inflation will go down, and when the central banks will lower interest rates.


Delayed recession

It no longer seems that the recession is just around the corner. However, we still believe that it will come as a result of the increase in interest rates, the high inflation and the level of uncertainty.

A long way down to the 2% inflation target

The inflation has peaked with the energy prices, but there is a long way to go before reaching the central banks’ target of 2%, and it will be challenging due to the strong labour market and the high wage pressure some countries have seen.

Surprisingly strong economy

The current strong economy and prolonged high inflation point to continued increases in interest rates from both the American and European central banks, while the reduction in interest rates have been postponed.


If the problems in the regional banks of the US should unexpectedly evolve, it might shift attention away from the inflation, and the central banks might refrain from raising interest rates further, even if the inflation does not reach the target entirely. This is our short-term focus. At the very most, this will mean no further increase in interest rates. The high interest rates are something that we will have to get used to.

How we prepare for what is to come

It is good news that the financial economic data are better than expected and that the financial markets, in general, have come off to a good start of the year, especially following a challenging 2022. However, it is really important to remember that pension is a long-term investment.

We expect this year to be another challenging year, though better than last year. With that in mind, we prepare ourselves for a slightly negative result for the year as a whole. Also meaning that we have kept our reduced stock exposure. At the same time, we have upped risk diversification even further. This is done by making alternative investments expected to provide stable returns. Furthermore, we also increase the geographical spread by trying to make use of some of the current differences between the large economies of the world. Finally, we increase our investments in commodities, infrastructure, and real estate, known for protecting returns against inflation.

Even though our focus is currently on protecting our portfolio, we are also mindful that previous crises have shown things to change quickly. So besides being robust, our portfolio must also be capable of benefitting from positive market moves similar to the one we saw in January. The fact is that it is pivotal not to miss out on the start of a positive adjustment in the market. Therefore, we recommend customers to stick with their risk profile and remember that Velliv continuously adjusts strategy to current prognoses.