Market Commentary Quarter 1 2023

Download PDF

The first quarter of 2023 was a turbulent time for markets, but over the quarter all regional indexes successfully achieved positive returns.

In terms of performance in Q1 2023:

• January was a surprisingly strong month for equities, and we saw strong performance globally.

• February was a challenging month for many markets following political unease, with China rescinding some of the strong growth seen in the prior month.

• March gave positive results, with growth outperforming value, and generally global markets managed to deliver.

Central Banks continued the trend of increasing interest rates to combat the battle against inflation, with the European Central Bank (ECB), Federal Reserve (FED) and Bank of England (BoE) all raising rates by 0.5% to 1% in the period. Alongside interest rates increasing, the collapse of Silicon Valley Bank (SVB) and the Credit Suisse crisis has the potential to tighten lending. As a result, the FED gave the impression that interest rate hikes may be slowing.

Following the banking situation, investors have moved to safer treasury assets; yields are beginning to fall and prices have increased. Although there has been volatility, the asset class performed well over the quarter.


In the UK, contrary to the last quarter of 2022, business sentiment appeared to be more upbeat about the coming year and the Purchasing Managers Index (PMI) rose above 50 for March, showing signs of growth. Unemployment remained unchanged at 3.7%, demonstrating continued resilience. The BoE continued to raise interest rates, with the base rate reaching 4.25% following higher than expected inflation of 10.4% in February, which was a slight increase on January. The Bank is expecting inflation to return to more normal levels in the coming months. Over the period, the FTSE 100 achieved muted growth of 3.55%.

Europe ex-UK

In Europe, turbulence was demonstrated in the banking sector with Credit Suisse being bought in a quickly-actioned deal with UBS, as a result of the Swiss authorities stepping in. Generally, the market accepted that the issues seen were isolated to this bank, with little worry about contagion. Despite turmoil, the Euro area performed very well over the quarter, with the EUROSTOXX 50 achieving 14.31% with strong results from Germany and France. Whilst the situation in Ukraine continues to have an impact on energy prices, Eurozone inflation reached its lowest point in the last 12 months in March, with the Consumer Price Index (CPI) down to 6.9%.


In the US, the collapse of SVB was a key focus at the end of the quarter. The FED stepped in to protect depositors following a historical run on withdrawals, but confirmed that whilst this is not a confirmed protection for all banks, the problems with SVB were contained. The FED increased interest rates by 0.50% over the period, as expected, but gave hope to investors that the end of the rate hikes is potentially near with inflation continuing to fall month-on-month. Overall, markets were unperturbed by the uncertainty with financials and the region finished with positive results over the quarter.


Inflation in Japan contracted in the first stage of the quarter, before slowly increasing again. Markets had suffered with the Yen appreciating in 2022, causing exports to suffer, but domestic markets remained resilient. Over the quarter, Japan TOPIX returned 7.2% demonstrating strong performance. Whilst last quarter we commented on the change of yield curve policy, there were no further changes made in January’s meeting and investors are now looking to the see what the new governor introduces in April.

Emerging Markets/Asia

The reopening of China following the COVID crisis led to strong growth in January. However, this was dampened by increasing political tensions with the US and Taiwan in February. Inflation has remained low, increasing by 1% over the year. Concerns of a potential recession weighed on the region, especially following the banking uncertainty, but the markets managed to achieve muted but positive returns over the quarter.


The major issue today is how central banks are going to manage inflation, whilst being conscious of economic growth and limiting the impact of a potential recession. Over the long term we think the assets we hold in portfolios will deliver strong returns but inflation is likely to remain structurally higher than recent history and there is the likelihood of an economic slowdown or recession within 12 months.

We have positioned our portfolios to cater for these circumstances by being tactically conservative, and we are continually reviewing potential areas where we can add value to our investment strategy. The current economic situation is conflicting, with bonds and equities pricing in differing scenarios, but we are maintaining a long-term view that our positioning is suited for our investors, and we will take advantage when opportunities arise. We continue to use our discretionary management to put our clients first, taking opportunities where possible within a careful risk managed approach.


Flying Colours Investment Management aims to make investment management more accessible and transparent for clients. Our roots in investing money on behalf of our clients, and our motivation lies in a genuine desire to make a difference to people’s futures and maximising the potential for solid long-term returns.

Let's start a conversation


By submitting your details you agree to our Privacy Policy and allow us to contact you.