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Each January, Morgan Stanley gives a list of possible futures to the attendees of its Global Insights conference, and asks them to pick which seem most plausible. Choosing one option from the broker’s shortlists, they guess what’s most likely to go right and wrong in the coming year.
Here are the results for 2023:
It’s an odd exercise, railroading as it does the pedestrian thinking of professional money managers straight through the middle of Wall Street’s Overton window. Why should it matter that fewer respondents are most convinced by the bumf in their inbox about a US Goldilocks scenario than by China’s all-in reopening strategy? How is it useful to know that the greatest fear of half those surveyed is persistent inflation, versus 2 per cent for WWIII? Who cares?
Answers tend to cancel each other out, which makes intuitive sense, since asking someone to choose from a list their best possibility is a prompt to say its opposite is the worst possibility. For example, inflation is near the top of both 2023 lists. There’s not much to conclude from that, beyond “inflation is definitely a thing”.
A more interesting approach to the data is to look for when positive and negative results don’t match, either because of a skewed vote or an absence of any available option to pick. Any disconnect suggests a blind spot around where risk and reward have drifted apart.
Worries about weaker-than-expected corporate profits in 2023 appear not to be matched by hopes of stronger than expected profits, for instance, while China is mostly absent among the risks, despite showing up as the favoured pick for a nice surprise. From that it’s reasonable to assume consensus thinking is heavily long China’s reopening, neutral on rates and modestly short corporate margins.
Going by previous results, this compare-and-contrast approach is a passable lead indicator. Here are the charts from last January:
The worst year in 250 for markets meant everyone did well with negatives and poorly on the positives, so at a headline level, the poll looks useless. But compare the two lists against each other and it’s apparent that the consensus thinking was right: it was more optimistic than fearful about Covid, but there wasn’t much to counterbalance geopolitical and inflationary fears. As predictions go, that’s not bad.
Outliers and mismatches are notable in part because they are quite rare. Most years they barely show up at all, such as in 2021, when the poll was virus heavy on both sides:
Trade deals and liquidity were the themes of January 2020, again in near symmetry:
Ditto 2019:
But among the mostly matched risks in 2018, oil was a low-scoring outlier. (It went up a lot then down a lot.)
Populism and protectionism featured heavily on both sides of 2017’s poll:
And in 2016 there was a chaos of outlier events, which was pretty much how it felt to live through:
This year’s poll is neither gonzo like 2016 nor dull like 2019. The only strong standout finding is on China, around which a strength of current optimism has no offset. Morgan Stanley didn’t think to even offer one. It’s a Goldilocks scenario with no bears.
For reasons on why the consensus might be wrong, our colleagues at Unhedged are well worth reading.
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