Emerging markets faced a number of headwinds in 2022. We believe the factors underlying these headwinds are now turning into tailwinds that should boost EM performance for at least the next 12 - 18 months.

Despite financial markets making a strong start to the year, investors still appear skittish as uncertainty oscillates between fears of a too hot (inflation) and too cold (recession) macro backdrop. As we explore in this week’s report, these bear case scenarios have been interspersed with what appears to be the Goldilocks scenario of “benign disinflation.”

Australia’s consumer price index (CPI) lifted 1.9% in the December quarter, taking the annual headline rate to 7.8%. This was above the consensus estimate of 7.5%. In this report, we discuss the implications of an upside inflation surprise for financial markets, and we consider how stubborn Australian inflation is likely to prove over the coming year.

Stubborn inflation, rapid central bank policy tightening and concerns about a potential global recession have created a tough year for financial markets. But with successive better-than-expected inflation prints in the US, the key macro force weighing on markets is now receding as a risk in our view. In our final report for 2022, we examine the key market influences shaping the outlook for 2023.

After a rally extending all the way from 2020’s Covid lows, 2022 has proven to be a difficult year for investors. In this week’s report, we review the key drivers of the market’s sub-par performance in 2022, and we foreshadow the issues likely to affect investors in 2023.

The surprisingly strong acceleration in inflation over the past 18 months has been felt in most corners of the globe. Australia has also felt the impact of this global inflation surge, although not quite as intensely as many comparable developed economies.

While the Australian equity market is down around 3% in price terms year to date, the local market has outperformed global equities, which are down around 11% in AU$ terms for the year so far. In this report, we consider whether Australia has what it takes to continue outperforming global markets in 2023.

A key story of 2022 is the steady rise of the US Dollar. With all the uncertainty in the world right now, one point of stability has been the resilience of the greenback, which has sharply outperformed its global currency peers.