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The Alternative Investment Market (AIM) is sometimes seen as the “little brother” of the FTSE 100 here in the UK. Yet it contains many exciting companies with promising growth prospects. With 2023 now upon us, what is the investment outlook for the year ahead? What could it mean for AIM investments? below, our investment team at Bure Valley Group offers our reflections. We hope you find this content useful. To find out more about our EIS and other investment opportunities, visit our portfolio page here. To enquire regarding our latest projects and funding, you can reach us via:
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The outlook for US stocks
Large investment firms like Morgan Stanley and JP Morgan have widely predicted a coming year of underwhelming performance in the US equity markets. The latter expects global growth to be sluggish at 1.6%, particularly due to Europe’s energy crisis and China’s handling of the COVID-19 pandemic. A US recession is deemed “likely” before the end of 2023, although the Federal Reserve is expected to start cutting interest rates too – adding upward pressure to asset prices. However, this potential recovery could accompany economic weakness, such as a rise in unemployment, which could add to downside risk.
The outlook for the FTSE 100
Interestingly, many investment firms are making more positive noises regarding the UK stock market for 2023. AJ Bell predicts that the FTSE 100 could reach 8,250 by the end of the year (potentially beating its former high of 7,877 in June 2019). This is despite expected further rises in the base rate by the Bank of England – trying to counter inflation at 40-year high. The UK economy is widely expected to shrink in 2023. To explain this apparent contradiction, we should note the sectors which mainly comprise the FTSE 100. These include energy giants, miners and financial services companies. The ongoing war in Ukraine – and a cold European winter – could see global wholesale energy prices go even higher later in the year. Energy companies and UK branks also do much of their business using the US dollar, which has risen against other global currencies since 2022.
What the outlook means for AIM
The companies listed on the AIM emanate from over 25 countries across the globe. The index is also more diverse than the FTSE 100, with 37 different market sectors holding significant weight in its value. The index has struggled over the last year, with the FTSE AIM All-Share standing at -22.28% compared to 24 January 2022. Despite this, Credit Suisse has marked 2023 as a good year for alternative investments as international relations and commerce hopefully “reset”. Other firms like Shroders point out that mispriced opportunities “abound” amongst the UK’s small and mid-cap companies. 2023, in short, could be a great year for private investors.
Be patient and selective
Early-stage investors should always be prudent when choosing companies for their portfolio. Yet the landscape in 2023 is a reminder to be ever-more vigilant. Uncertainty still abounds amongst economists and investors. Geopolitical events (e.g. possible conflict escalation in Ukraine) could quickly change the landscape. Emerging markets could help investors find returns that may be lacking in US stocks, yet China – which accounts for one-third of the MSCI Emerging Markets Index – is still a “wild card” in 2023. The country’s abrupt reversal in its “zero covid” policy is a case in point as the government faces a wave of protests.
For UK investors, looking closer to home – particularly at the nation’s private equity landscape – could be a viable option to hedge against certain global risks, particularly since there is a lot of undervaluation at present. Be mindful of the potential impact of inflation on your investments. In a high-inflation environment, businesses with high margins, strong bargaining power and which offer “essential” products or services are likely to be more robust. Cryptocurrency has taken a beating in 2022, with Bitcoin falling 60% across the year. It is easy to assume that 2023 has to hold better news for crypto investments, but investors should carefully vet different prospective crypto opportunities before including in a portfolio.
Renewables are likely to continue high up on government agendas in the coming months, with the UK and other countries keen to increase their energy independence from Russia. This could be favourable to early-stage UK companies offering innovative, green solutions to the world. Fo many investors, fixed-income investments are becoming more attractive as interest rates rise and US equities appear less promising. Yields are certainly higher, but the market remains very sensitive to changes in inflation and interest rates. Bear in mind that alternative investments like AIM and the wider private equity market have a low correlation to traditional asset classes (e.g. stocks and bonds). Finding appropriate opportunities in the former could be a great way to help diversify your portfolio and access promising returns.
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