From a Brexit reversal to a soaring gold price, Saxo Bank reveals the outlier events that could rattle markets next year.
It is the time of the year when fund groups gaze into their crystal balls and attempt to forecast what will happen next year and how this will impact the stock market.
Most predications focus on minor changes to the consensus view, such as inflation coming in slightly above or below expectations, or one stock market performing marginally better than another.
Getting these calls right may help you beat your peers, but the impact on returns is limited as a lot of next year’s mainstream risks are already baked into share prices.
If investors really want to stand out, they must make correct predictions about the true outlier events that could really rattle stock markets.
Saxo Bank takes on this task with its annual “Outrageous Predictions” report. While not its base case for what will happen next year, each prediction is backed by serious research, and the bank has a record of getting it right.
Correct calls include suggesting that Britain could leave the European Union in its 2016 outlook, predicting a 25% drop for US shares in 2008, Bitcoin tripling in value in 2018, and Germany entering recession in 2020.
In this article we’ve focused on five of the 10 things they say could happen in 2023, going into detail on the ones I think will be most impactful for investors.
Gold rockets to $3,000 as central banks fail on inflation mandate
In 2023, Saxo Bank says gold could finally find its footing after a challenging 2022, where it failed to rally even as inflation surged to a 40-year high.
It argues the gold price will benefit from the geopolitical backdrop of a “war economy mentality” of self-reliance, which would cause countries to hold less foreign currency and opt for gold instead.
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Higher inflation could also be a catalyst for gold, with a post-Covid reopening of China unleashing demand into the global economy and increasing commodity prices, as well as US central policy stoking inflation, increasing the appeal of gold.
Chief investment officer Steen Jakobsen said: “Gold slices through the double top near $2,075 (£1,700) as if it wasn’t there and hurtles to at least $3,000 next year.”
At $1,795 today, a move to $3,000 would be a 67% return, assuming no changes to pound/dollar exchange rates.
Widespread price controls are introduced to cap official inflation
The gold price could also be driven higher by price controls designed to cap inflation. This would trigger the “law of unintended consequences” and lead to far greater problems for the government, Saxo Bank argues.
It said: “Controlling prices without solving the underlying issue will not only generate more inflation, but also risk tearing at the social fabric through declining standards of living due to disincentives to produce, and misallocation of resources and investment. Only market-driven prices can deliver improved productivity and efficiency through investment.”
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It adds that price controls are already in place, including taxes on windfall profits for energy companies, but such measures do not work and the government ultimately foots the bill and the public pay due to higher inflation.
UK holds ‘UnBrexit’ referendum
Saxo Bank says that in 2023, Rishi Sunak and Jeremy Hunt could manage to take Tory popularity ratings to unheard-of lows as their fiscal programme throws the UK into a crushing recession, with unemployment soaring and, ironically, deficits soaring too as tax revenues dry up.
Public demonstrations could break out, demanding that Sunak call snap elections because of the lack of a popular mandate. Amid the economic ruin, polls even in England and Wales indicate second thoughts on the wisdom of Brexit.
The bank predicts that Sunak will cave and call an election, resigning to allow a new Tory profile to take charge of the battered party.
Labour leader Keir Starmer could then win at the ballot box, campaigning for a new referendum on Brexit. A Labour government takes power in autumn next year, promising an “UnBrexit” referendum for 1 November 2023. The ReJoin vote may then win, Saxo Bank says.
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The market impact would be a recovery for the pound, with sterling rising 10% versus the euro and 15% versus the Swiss franc on the anticipated boost to the London financial services sector, according to Saxo Bank.
Tax haven ban kills private equity
In 2016, the EU introduced a tax haven blacklist identifying countries or jurisdictions that were deemed “non-cooperative” because they incentivise aggressive tax avoidance and planning. This was in response to the leaked Panama Papers, a trove of millions of documents that revealed tax cheating by wealthy individuals, including politicians and sports stars.
As the war economy mentality deepens further in 2023, national security perspectives may turn increasingly inward to industrial policies and the protection of domestic industries, Saxo Bank argues.
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“Governments will look for all available potential tax revenue sources and find some low-hanging fruits in haven-enabled tax dodgers. It is estimated that tax havens cost governments between $500 billion (£407 billion) and $600 billion annually in lost corporate tax revenue,” it said.
Therefore, Saxo Bank says that in 2023 the OECD club of rich nations could introduce a full ban on the largest tax havens. In the US, the investment profits from private equity taxed as capital gains may be taxed as income.
The market impact could be a 50% crash in the value of the iShares Listed Private Equity Ucits ETF, which tracks a basket of companies involved in private equity and private equity funds.
OPEC+ and ‘Chindia’ walk out of the IMF, agree to trade with new reserve currency
Recognising the ongoing weaponisation of the US dollar by the US government, non-US allied countries could move away from the global reserve currency and the International Monetary Fund (IMF) to create a new international clearing union and a new reserve currency.
This would cause non-aligned central banks to vastly cut their US dollar reserves, sending US Treasury yields soaring and the dollar falling 25% against a basket of currencies trading with the new reserve currency.
Other “outrageous” predictions include a billionaire coalition, which creates a trillion-dollar Manhattan Project for energy, French president Emmanuel Macron resigning, the foundation of the EU Armed Forces, a country agreeing to ban all meat production by 2030, and Japan pegging the dollar at 200 yen to sort out its financial system – but at the expense of its economy and stock market.
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