Welcome to Finance and Fury. Will the market crash in 2023? Interesting question – one that many people have answered.

  1. Every year – Ipsos asked more than 24,000 citizens of 36 countries to reflect on the year gone by and also make some predictions for the year ahead – so this is what we will be looking at in today’s episode
  2. These responses were collected at the end of the previous year in question to each of the years in predictions – as an example, for 2023, survey data was collected in October and November 2022 – any responses of uncertainty or non-answers weren’t included in the results – which were only positive or negative in response
  3. On average across all 36 countries, over half (56%) describe 2022 as a bad year for themselves and their family – but 73% say it has been a bad year for their country
    1. So whilst less people thought that the year was a bad year for themselves – more thought it was worse for their respective country
    2. However, the figures suggest a degree of improvement compared to the last two year – in 2021, 58% described this year as a bad year for themselves and 77% for their country – this is coming off the higher water market that was 2020, where 90% said it had been a bad year for their country and 70% that it had been a bad year for them and their family
    3. These are averages – and different countries had different results – in 15 of the 36 markets covered, more than 80% felt like 2022 has been a bad year for their country – with Great Britain and Hungary both leading the pack reaching 87%
    4. Only four countries saw the majority of respondents thinking the year was pretty good – with Saudi Arabia and the United Arab Emirates, seeing 44% of respondents stating it was a negative year, and in China and Switzerland, both at 48%
    5. So these results do vary quite significantly between people between each nation – some may be having a good year, some may feel like they are not, and that things are going to get worse
  4. Looking forward towards 2023 – around half show a significantly more pessimistic view of what next year will bring – Much of this negativity surrounds the economic situation that they guess will emerge
    1. Whilst these surveys cover many different topics, from world security, environmental issues, society and technology –we will only be focusing on the economy and financial markets side of this

The economy in 2023 – what the respondents guess is going to happen

  1. there is much more pessimism about the global economy than we saw this time last year – Only 46% on average believe that the global economy will be stronger next year, compared to 61% who did so last year and 54% in 2020
    1. Those respondents in Belgium are the most pessimistic about the economy with as few as 27% expecting to see improvements
    2. However, those in China and the UAE where much more optimistic, with 78% and 76% respectively of respondents anticipating better times in the coming year
  2. The reasons for this pessimism are clear – the countries with the most pessimistic results are those that have already experienced major increases in their cost of living, and expect their cost of living to continue to rise in 2023 – 79% expect prices to rise, with 75% expecting to see inflation in general to increase – with the same margin anticipating future increases of interest rates in response – in turn, 68% also expect that levels of unemployment will increase
    1. What I found even more surprising is that nearly half of the respondents, around 46% think it likely that their country will need to be bailed out with emergency funding from the IMF
      1. those in South Africa (78%) and Argentina (70%) being particularly worried about this possibility – those in western nations less so
    2. Around half of respondents, being 50%, think it is likely that major stock markets around the world will crash in 2023, a significant increase from those predicting the markets in 2022 where 35% thought markets were likely to crash
      1. Of this 50%, 15% of people think this is very likely to happen

So, will the share markets crash in 2023? The real answer should be no idea – we will come back to this

  1. For the upcoming year, the expert predictions have ranged from extreme optimism to extreme pessimism, especially when it comes to gauging the health of the global economy
  2. But this episode is all about ignoring the so-called experts and looking at the everyday individuals who took part in this survey around the world
  3. Specifically, respondents were asked a question on whether “major stock markets around the world will crash” in the following year, and were asked to respond either “likely” or “unlikely”
  4. Country specific prediction – When looking forward to 2023, most of the respondents from around the world felt that the likelihood of global share markets crashing was more likelythan unlikely. Looking at some of the more major economies – of the 27 countries surveyed – some of the key results are as follows:
    1. Australia – 57% said likely, 25% said unlikely
    2. Germany and France were similar at around 43% said likely and 35% said unlikely
    3. UK – 47% said likely and 30% said unlikely
    4. China – 40% said likely and 50% said unlikely
    5. Japan – 40% said likely and 26% said unlikely – in contrast to China – same with negative views, but much less with positive view
    6. USA – 47% said likely and 31% said unlikely
    7. India is the standout – with 59% said likely and 27% said unlikely – most pessimistic of these countries
  5. However, Australia is up these being one of the more most pessimistic – only 5 countries respondents more so, with RSA at 63%, Poland at 66%, Malaysia at 71%, India at 59% and Chile at 59%
    1. But in total – In 24 of the 27 countries sampled, citizens thought it was more likely than not that global share markets would crash in 2023
    2. This includes the entire G7, with 40–47% of each member’s citizens responding “likely” compared to 26–35% responding “unlikely.”
    3. The only three countries where citizens believed a 2023 share market crash was less likelywere China, Israel, and Hungary. China had the highest “unlikely” response rate at 50%, while in Hungary, just 33% of respondents responded “likely” compared to 47% responding unlikely.

This seems bad – but how good are these every day individuals in guessing what is going to happen to share price movements? And should we be paying attention to their predictions? Also, what influences these predictions

  1. To work this out, it helps to look at some data from the Ipsos Global Advisor Predictions surveys going back over the past few years, from 2019‒2023 – the time period this is publicly available
  2. These show the chart that plots the percentage of average citizens that think global share markets will crash in the upcoming year.

 

What influences this prediction – sentiments as it appears to come down to how people are feeling

  1. The more people feel concerned about the world around them, the more you are likely to think doom and gloom across the board – which includes the price movements of each nations domestic share market
  2. This assumption appears to be backed up by the changing financial sentiments by the respondents of each nation
  3. When comparing 2023 responses to those from 2019, we can see that the last five years have brought uncertainty and pessimism to most countries:
    1. Australia – 15% pp more said likely change, -15% pp said unlikely change
      1. 2022 – 38% to 38%
    2. Germany and France were similar at around -10% pp and -5% pp
    3. UK – 0% and -2% – breaking even
    4. China – 12% and -9% – India +26% and -24%
    5. Japan – -4% and -6%
    6. USA – 9% and -15%
  4. But the responses of global stock markets likely crashing rose in 25 of the 27 countries – where 8 countries increased by more than 20 percentage points (pp)
    1. South Koreahad one of the biggest increases in “likely” responses towards share markets crashing at 26 pp, Japan was the only country that responded in a lower likelihood by 4 pp – so even though these countries are in close physical proximity – this has nothing to do with their optimism or pessimism in share market returns

While global sentiment is becoming increasingly pessimistic, we can also see that previous year’s predictions didn’t always pan out. So, the question remains, what will 2023 really bring?

  1. The real answer should be that nobody truly knows – we can all take a guess at worst, and an educamated guess at best
    1. In my view of an educated guess, I think that many of the global predictions in 2023, particularly Australia may be overstated
  2. The first and primary reason I believe this is due to comparisons to past results from this same survey
    1. Take Australia – showing the last 5 years, the average has not been correct to date
      1. 2019 – 42% thought the market would crash – and 40% thought that it was unlikely for markets to crash – so with more people thinking that markets would crash, how did they perform – up 20% on the ASX index
      2. 2020 – 40% thought that the market would crash – and 34% thought that it was unlikely for markets to crash – so with more people thinking that markets would not crash – we saw a record drop and recovery in markets – and in the end the Australia market was up by 5% on the ASX index
  • 2021 – 38% thought that the market would crash – and 41% thought that it was unlikely for markets to crash – we saw a pretty normal year for markets – with the Australia market being up by 13% on the ASX index
  1. 2022 – 38% thought that the market would crash – and 38% thought that it was unlikely for markets to crash – so break even in those with a strong position – as we know – markets were down by around 10% – which probably should be counted as a crash
  1. Now look at another major market –
    1. A similar story plays out – across all markets – but it is common consensus that this year is the year that markets will crash – even though 2022 was the year many countries under predicted a correction
    2. Because past events influence our outlook – if markets have just crashed, then we may assume that this trend may continue
  2. predicting the future is hard and you can rationalise decisions that you make… and I have seen this in decisions about… even very short term decisions about what is going to happen in elections, based on a series of assumptions. But this is one of the things that I wanted to talk about: that one of the challenges is really trying to test your own predictions and forecasts. If you looked back at your forecasts in 2006, 2007 and then at what actually happened in 2008,
  3. Average struggles – What does this tell us?
    1. Nobody knows – We can all give educated guesses – But a broken clock can be right twice a day
    2. I have seen professional predictions for the past 5 years around the US being over valued compared to the Australian Market – hence to go underweight to the US – in this case from a fundamental point of view, this analysis is completely correct – but from a historical returns point of view, it was a horrible decision
    3. What may be true in the perception of the fundamentals may be completely inaccurate when it comes to the ultimate outcome

The way markets price in assets is guessing what happens – if more people have guessed markets will crash – it can become a self fulfilling prophecy – but only if this is reflected in those with skin in the game – if those answering these questionnaires have little to nothing invested, then their responses can be discarded  

 

Regardless – important to view sentiment around markets are purchasing opportunities – when others are in fear, this can be a great time to buy

Lesson – ignore what other average pundits are saying – focus on your own gameplan and long term market performances

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