Valuations beginning to look interesting – Fidelity’s Jeremy Podger

by | Dec 5, 2022

  • The correction in valuations is typical for bear market phases and valuations now appear fair and increasingly attractive on a longer-term view (especially ex-US)
  • Some areas such as Japan, UK and financials are likely to bring good value opportunities in the coming year
  • Modest preference for value stocks over growth


During 2022 there was a sell-off in equities worldwide, and with interest rates and bond yields rising sharply as the year progressed, markets face an increasing likelihood of recession in 2023.

However, Jeremy Podger, Portfolio Manager of the £3.1bn Fidelity Global Special Situations Fund, discusses why he believes valuations are now beginning to look interesting in equity markets, and should present compelling investment opportunities for long-term investors as we enter 2023.

“As economies slow, it is likely that reported earnings will fall, though possibly by less than many previous downturns given the uplift in revenues from relatively high inflation. We would note that in typical market cycles, markets normally bottom ahead of the trough in company profits.

“So, while the global economic backdrop is not encouraging, the correction in valuations that we have already seen is typical for bear market phases and valuations now appear roughly fair and increasingly attractive on a longer-term view, especially outside the US. We look for signs of easing inflationary pressures, particularly wage momentum, to provide a more positive impetus for markets.

What could surprise markets in 2023?

“We have had our fair share of surprises in the past two years, and we live in a world where it would be reasonable to expect more. Higher than expected inflation has been a clear negative surprise in 2022. On current expectations, US interest rates will rise further and stay high until inflation appears to be “beaten”. A positive surprise would come from early signs that US rates can fall.

“With interest rates higher in the US than in other developed economies, and likely to remain so for a while, there is widespread support for the US Dollar which now appears over-extended. It is possible that we will see a correction next year, caused for example by a slowing in the US economy, which would be helpful for commodity-dependent economies and could bring an end to the prolonged period of outperformance of the US equity market against the rest of the world.

“China has also been a drag on markets this year, with a slowdown due to covid lockdowns and problems in the property sector. An improvement in either or both these factors is possible and would help local equities and the wider markets.”

Value to be found in Japan, UK and financials

“At a sector level, the information technology sector is likely to continue to remain volatile, though the bulk of the correction is likely behind us. In general, however, we still view growth stocks as relatively expensively valued, particularly in view of prevailing bond yields. We therefore believe the modest portfolio tilt towards value is appropriate at this stage.

“Some areas that are likely to bring good value opportunities in the coming year include Japan, UK, and financials. However, we will be cautious in increasing exposure to the more cyclical companies at this point except where we find compellingly over-sold names.

“We’re not planning any changes in our stock selection process in 2023 but we enter the new year with a more balanced geographical profile, relative to benchmark, than was the case a year ago. We plan to add to areas where earnings are most resilient and where return potential is greatest, and at the right time this may involve adding back to non-US markets.”

To read Fidelity International’s full Investment Outlook for 2023, please click here.

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