2022 has been a very difficult year for European equities and, in particular, for the more growthy/quality end of the market. Interest rates and inflation expectations have risen sharply, whilst geopolitical concern has been a near constant. Value has been the place to be, more specifically defensive value. We have underperformed the market.

Heading into 2023, we are starting to see a more balanced debate emerge on the likely future direction of monetary policy and on the sustainability of heightened inflation.

Coupled with this, equity markets are inexpensive and, unless we see significant earnings downgrades over the next 12 months, such low equity market valuations are unlikely to be sustainable.

A final observation is that, according to survey data, European equities are deeply out of favour with international investors.

So what does this mean for 2023? In summary, after a tricky 12 months, we have cheap and out of favour European equities and a more balanced debate between Growth and Value positioning. The first of these factors leaves me confident that European Equity markets can have a positive year. The second of these factors is more difficult to interpret, however, I am hopeful of a more balanced market, less driven by style (Growth versus Value) factors and more driven by stock-specific performance. In a more positive environment, one may expect a recovery in areas such as Consumer Discretionary, Information Technology and Industrials.