What themes will most influence European equities in 2023?

I think looking into 2023 terms of thematics that will influence markets, there will always be the unexpected. But in terms of those that I think are probably quite predictable as themes that that will influence 2023, I think that the world is talking about, the financial world is talking about pivot.

So the world will be the financial world will be looking for confirmation that the Fed will pivot and hoping that that happens in the first months. Call it the first four months, certainly the first six months of 2023.

Coming down a bit to micro, a theme to look for in 2023, in the early months, and I’m going to say Q1 and Q2 is I think and I’m actually going to say the good news of profit warnings.

The good news of profit warnings. They are anticipated. So, I think what you’re going to see, particularly in capital goods, industrials, where a great many of them have been producing for inventory, a great many of them are ratcheting down. And that’s going to tell you that inventories it is telling, in my view, that inventories are being cleansed. And I think that will lead to earnings misses, earnings warnings. Why is that good news? Because it’s anticipated.

But the really good news about that is I think that’s the last drawdown for many of these stocks, the last chance to get into European equities in general.

What is the most compelling opportunity for European investors in 2023?

I think the most compelling opportunity in Europe in 2023 is Europe, is Europe.

I’m sort of sitting here hoping for. I actually think a lot of market participants are hoping for another sell off. But so in general, I think that we stand on the verge of a proper European equity bull market. It may already have begun. I’m not sure how can you be kind of thing. But the lows may already be in.

I wouldn’t be surprised to see a very short term sell off because we’ve had a good rally. But I absolutely see the ingredients, the ducks in a row, the stars aligning for a terrific European bull market. Now Within that, what do we think are the best opportunities long term? Still energy.

It’s been a great year for the energy stocks, but I think it’s only the beginning. So and that’s a very long term. Where do I see opportunity, energy?

I think for 2023, which is only one year. So that’s quite short term for me. But for 2023, I see great opportunity in what I would call old fashioned Europe, just old fashioned Europe. We have many a fine industrial company. We have many a fine chemicals company, we have many a fine materials company. They are not even European. They are listed in Europe and have great market shares globally, great franchises, globally, great management.

Which one chart defines European equities in 2023?

I think one chart that is worth looking at and I would probably recommend this not just for European investors. I would recommend this to global investors, and I would recommend it particularly to American investors. If you’ve been an American investor, it’s been a stay-at-home world because frankly, if you’ve been based in America and you haven’t lost money in European equities and local currency, well, you’ve lost it in dollar/euro.

It’s changing. It’s really changing. And I think the numbers went something like this in 2022. I think at one stage at the lows in a common currency, let’s take that currency dollars. I think I’m right in saying that if we take a chart, you would see European equities underperform the US by about I think at the peak ten percentage points in 2022 or thereabouts or approaching that.

I think I’m right in saying that’s closing as we speak towards the end of 2022. And that tells me that we’ve been right to say the next ten years are going to look very, very different from the last ten years in world equity investing. I think, and I’ve been seeing it maybe a wee bit too long, but I think in 2022 you saw the beginning of something unthinkable.

European equities have already started to outperform. And for me, that’s game on. And for me, that’s durable. So that is a chart I would get out. And when you’re bored with your relatives at the Christmas table, and that usually takes me about 5 minutes, look at that chart.

What is the main key takeaway for European investors in 2023?

I think when I’m asked what is the key takeaway for investors in European equities, I sometimes these days wonder, am I speaking to a small audience?

Because I’m not sure there’s that many left.  I’ve met so many investors. You know, there’s kind of two badges, one of two badges that they wear. One badge is “I am at my most overweight in European equities ever.” And the other one says “I hold none.” And European equities almost feels that way. But for those who are there, stay the course.

And part of that is virtually all of the reasons to stay away from European equities. They’re falling away. The energy crisis will abate into 2023. Europe, the Ukraine war is there, is priced in, the market knows about it. Unless there’s some desperate escalation. Desperate escalation.

The profit warnings will come and then they’ll go. The lows are in in my view. And your next drawdown, I do think is your last opportunity to get in before a very, very meaningful – I don’t mean a 10% up year – I mean something much more meaningful.