According to analysts at UBS, 2023 will be the year of disinflation and after inflation surprised last year by peaking higher and lasting longer than expected, this time will see the reverse.
“We are seeing broad signs of slowing inflation, starting with lower energy prices (especially gasoline in US and gas in Europe), and a significant easing of supply bottlenecks, which in return leads to lower core good prices," they said in a note to clients.
So should the strategy just be to buy 2022’s underperformers and sell the outperformers?
It’s not that simple, the Swiss bank's analysts suggested, as inflation recently has been driven by post-Covid consumer demand (2021) and in 2022 by supply bottlenecks, magnified by the Russia-Ukraine war.
In 2023, both demand and supply play a role in the disinflation process, which means some judgment is required to pick the possible winners.
Using the FTSE 350 stock universe, the UBS analysts found that the most favoured sectors to play the disinflation theme are Health Care and Tech, which tops the ranking in all of their metrics.
These, along with discretionary consumer and communications services, have empirically overperformed other sectors during periods of declining inflation and have exhibited the lowest beta to inflation changes.
Underweights include energy, industrials and financials, with energy consistently ranked the worst across the four geographic regions assessed by the analysts, with financials and industrials also scoring poorly, while materials was lowly rated in both Europe and Apac.
Netflix and French game group Ubisoft top the lists with Live Nation and Pearson the two lowest-rated on the broker's metrics.
Looking at FTSE 350 stocks in particular, the UBS analysts highlighted potential winners as comparison site Moneysupermarket.com (LSE:MONY), bookmaker Flutter, and insurer Lancashire Holdings.
True to the theme, losers included some big risers in 2002, notable oil giant Shell, British gas owner Centrica, online educator Pearson, miner Anglo American, and property group Hammerson.