One of the most significant events of 2022 was the sharp rise in inflation. Consumer prices have risen sharply due to a combination of several factors, such as raw material supply issues, prolonged accommodative monetary policy led by central banks and a changing post-pandemic environment. The inflation rate in Slovakia exceeded 15%, well above the desired 2% target. Next year, central bank measures are expected to lead to tighter inflation control. The Fed raised interest rates repeatedly in the final months of last year and has continued to do so this year, although not at such a rapid pace. In December 2022, interest rates were 4.4%. The strengthening dollar has reduced the foreign earnings of US companies, which has had an impact on the decline in US stocks.
Technology companies were challenged over the past year as they have had to adapt again to the new environment following the gradual easing of pandemic measures. Restricted material supplies and massive lay-offs due to restructuring of many companies have had an impact on the share price of these companies. Alphabet, Microsoft, Amazon and Meta have laid off thousands of employees. Yet, the companies' managers consider this move to be beneficial in the long run. Despite the difficulties, the entire FAANG group is among the top 10 tech companies of 2022, together with Oracle, Samsung, Tencent, Cisco and Broadcom.
The war in Ukraine has caused significant economic problems for many countries, as both Ukraine and Russia are significant suppliers of minerals and commodities. The EU sanctions package against Russia has had more negative impact on its economy than had been expected, while the Russian economy and national currency have managed to stabilise. Moreover, the EU has restricted natural gas imports from Russia and the war has had a serious impact on the world economy, causing significant global changes. Energy prices rose sharply before the winter and gas and electricity bills in Europe almost doubled compared to the prior year. Although this winter has been less severe, part of the problem persists and has forced the EU to rethink its energy policy.
The crypto market has also experienced a significant cool down, the first part of which happened at the beginning of the year and was accompanied by decline in bitcoin and other cryptocurrencies. The worst blow came in November when the FTX exchange collapsed. This event shook the credibility of cryptocurrency institutions and millions of people lost their investments. The year 2023 could bring new ways of implementation thanks to more advanced technologies. However, the question remains - will cryptocurrencies succeed in causing a renaissance?
The past year has to be assessed realistically - the markets have not done well and share of many trading companies have dropped significantly. They say that all bad things are good for something, and unfortunate events have left businesses and investors with room to improve or find alternative paths to growth. We have seen transformation and restructuring of businesses and it is more than certain that similar innovative thinking will be typical in 2023.
The year 2023
As noted above, technology companies have had tough time with respect to shareholder value. However, their innovative way of thinking has ensured that they have not fallen completely and are still able to maintain a relatively stable market position. In the coming year, we will see results of the measures that companies have imposed.
Increased domestic production and investment in digitalisation should solve the problems of global supply chain disruption, but despite these efforts, the situation is far from resolved. We still do not know whether the rise in the prices of goods and services will continue.
The pandemic has accelerated the trend of remote working and home office. Many companies now offer a hybrid model of working. This could have a significant impact on commercial real estate as companies may need less office space in the future. People looking for jobs prefer more flexibility. Although this trend has been present since the pandemic, it is expected to further intensify this year. On a positive note, companies are looking to adopt the ESG model, which has become the mark of a business focused on a greener and more innovative future over the past few years. It seeks to reduce its negative impact on the environment and to offer its employees the most favourable conditions for carrying out their work activities. The increasing use of digitalisation in sectors such as manufacturing and healthcare should lead to greater efficiency and productivity.
As far as geopolitical risks are concerned, US-China relations continue to be a concern. Although we have seen some attempts at improvement, such as the virtual meeting between President Biden and President Xi Jinping, there is still considerable tension between them. Frequently mentioned issues include trade imbalances, human rights violations and territorial disputes. Any escalation of tensions between the two countries could have a negative impact on the global economy. There are many factors that influence market developments that are difficult to predict in the long term, such as central bank decisions and the course of the war in Ukraine. Market sentiment could be boosted by a significant release of oil onto the market, yet high inflation could cause social unrest in some countries.
The metaverse is growing in popularity and Meta offers an alternative venue for financial opportunities and entertainment. The Metaverse concept allows consumers to interact with brands and other users in 3D and VR environments, which could impact online and offline retail. Even though the company's stock has dropped significantly due to this project and it doesn't look good so far, the company still believes in a prosperous future.
Gold has been an important safe haven in the investment world. It reached a price of $2,050 per troy ounce in early 2022 but then went into a declining trend.*
Performance of gold over the last 5 years. Source: tradingview.com
The World Gold Council has several forecasts for the gold price depending on factors such as US central bank interest rates, bond yields and the dollar exchange rate. The strength of gold's protection against inflation fluctuates, but gold remains an effective tool. Risks and challenges come with a new year, but there are also opportunities for growth and innovation. If investors continue to monitor markets and learn from their past, they can establish favourable conditions for investment success in the year ahead.
* Past performance is no guarantee of future results.