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The Big Bad Wolf That Wasn't

Twelve months ago, 2022 was named The Punch.’ The events of that year exposed the structural vulnerabilities of the prevailing global operating system in areas such as energy, food, and defence. What had been considered sustainable for decades turned out not to be so after all.

 

Three inflationary waves (COVID-19, the Ukraine war, and profit-led inflation) led to tighter monetary policies with widespread macroeconomic pessimism with recurring references to the 70s. With the expected, financially induced economic recession on the horizon, investors went down to their bunker, with a devastating impact on the global stock markets.

 

Given these low expectations, 2023 had a real chance to please, especially after receiving a January boost from a reopening China. The US consumer proved more resilient than expected. Technology completed the positive picture with tangible advances in generative artificial intelligence and its potential impact on the productivity of everything.

 

But with interest rates raised at a record pace to tame inflation, recession fears acted as the Big Bad Wolf for the entire year. Where is it? How strong is it? Does it have sharp fangs? Nobody saw the wild beast, but no one could prove that he was not lurking in the woods, ready to pounce on the economy. Despite the relatively benign macro environment, everyone stayed home, just in case. As a result, 2023 ended up being one of the worst years in recent times for IPOs and M&A transactions.

 

Over the last few weeks, there have finally been sightings of the Big Bad Wolf. He looks like an eeny-weeny, teeny-weeny, little dull tooth one. The lesser threat to 2024 has since powered a remarkable market rally.

 

GDP growth in 2024 will almost certainly be slower than in 2023, but I would trade growth for macroeconomic certainty at any time. From that perspective, 2024 should offer a welcomed change.

 

It is time to do what needs to get done. The world will be in a better place once the massive backlog of M&A deals and IPOs is cleared. It is just a matter of efficient capital allocation.



2023 in Perspective

 

2009 – The Great Recession (MSCI index for global equities +35% after a terrible ‘08)

2010 – The BRIC Hope (+13%)

2011 – The European Meltdown (-7%)

2012 – The ‘Whatever-It-Takes’ Moment (+17%)

2013 – The Hypocenter of the ‘Lower For Longer’ Syndrome (+23%)

2014 – The Oil Price Crash (+5%)

2015 – The (Nitro) China Wobbles (-2%)

2016 – The Industrial Recession (+9%)

2017 – The Global Synchronized Recovery (+25%)

2018 – The Geopolitical Attack On Economics (-9%)

2020 – The Advent of Virtuality (+17%)

2021 – The Great Dislocation (+19% YTD)

2022 – The Punch (-18%)

2023 – The Big Bad Wolf That Wasn’t (+17%)

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