Strategist Advises Investors to Consider 'Good Quality Corporate Debt and Gold' in 2023

Michael Howell, managing director at CrossBorder Capital, believes that corporate debt and gold could be strong investment options in 2023 due to the fact that fundamentals remain strong and financial conditions remain tight in the stock market.

As the economy slows, financial conditions become tighter, and yields increase, one might expect to see more stress in the corporate debt markets and a higher rate of delinquencies. However, corporations have been able to refinance with relative ease throughout this cycle.

John Howell admitted that certain sectors of the market may experience some difficulty, but he also noted that many businesses, especially those with high growth potential, are in a "good condition".

According to Howell on Wednesday's episode of CNBC's "Squawk Box Europe," balance sheets are in good shape and revenues appear to be stable. He also noted that companies have access to borrowing from banks.

In 2008, the banks' lending stopped abruptly, causing a major issue. Fast forward to the present day and corporate debt markets are in a much better state, making it a viable option for 2023.

Investors have been monitoring the actions of the U.S. Federal Reserve and other major central banks in recent months, as they have been implementing a shift in their policies after a year of raising interest rates in an effort to control inflation.

According to Howell, a potential shift in 2023 could have an effect on markets. He proposed that central banks will take steps to provide more liquidity to markets and guard against the potential of a declining economy before they will change their strict stance on interest rates. He compared this to the U.S. economic recession of March-November 2001, when the Federal Reserve started to reduce rates in the beginning of the year.

According to Howell, the economy didn't start to improve until the end of 2001. The corporate debt market began to show signs of improvement in the second and third quarters of that year. However, the equity markets didn't start to improve until 2002. Government bond markets were relatively stagnant throughout the year, with a mid-single figure return.

It is recommended to invest in high-grade corporate debt and gold for the upcoming year.

On the surface, the anticipation of more liquidity from central banks in 2023 appears to be in conflict with the hawkish messages recently sent by the Federal Reserve and the European Central Bank. This communication shocked investors and caused stocks and other risky investments to decline.

According to Howell, the Federal Reserve and the People's Bank of China have already taken steps to introduce liquidity, even though the European Central Bank may be the last to do so.

The People's Bank of China (PBoC) has recently taken a different approach to providing liquidity, which is more than they have done in the past 18 months. This shift in policy is a sign of the need to stimulate the Chinese economy. According to the speaker, the PBoC is the best way to achieve this goal.

The Federal Reserve is increasing the amount of money available in the economy. Oil prices have dropped to less than $80 per barrel, which will inject more money into the system. The value of the US dollar has decreased by almost 10% from its highest point, which will stimulate the foreign exchange swap market, an important part of the shadow banking system. All of these factors are beginning to have a positive effect.

According to Howell, the market is currently in a state of "maximum tightness" and its liquidity is expected to improve in 2023. However, this does not mean that it is a good time to invest in equities.