Financial Services

Key trends impacting capital markets

The global economy may have bounced back from the ravages of 2020 and 2021, but we’re not out of the woods yet. While the markets may have stabilised considerably through 2022, issues like supply and demand concerns in the labour market, the conflict in Ukraine, Europe’s natural gas crisis, and the threat of yet another wave of COVID-19 have led to a fragile situation as we enter 2023. Although the risk of sliding into a full-scale recession is low, the flexibility to be prepared for a variety of circumstances is the need of the hour. Below are a few capital market trends to watch out for in 2023.

Rising interest rates

The Federal Reserve’s approach to combat inflation is increasing the benchmark interest rate. The theory is that growing borrowing costs will curb inflation, but we still have some way to go as the Fed continues tightening monetary policy. Market investors are concerned with the current scenario, where we see more dollars netting fewer goods, and as long as this is the case, we can expect interest rates to continue rising.

Growth in the defence sector

Aside from the situation in Ukraine, we’re seeing the breakdown of diplomacy in various places across the globe. These include growing tensions between China and Taiwan and friction in places like North Korea, Iran, Afghanistan, and Yemen. The expected result of these and more conflicts brewing worldwide is rapid growth in the defence sector.

A booming insurance sector

With how unpredictable life in today’s world is, it’s no surprise that the insurance industry is seeing consistently growing demand; a capital market trend that we expect to see continuing into 2023. Insurance providers can expect to see share prices continue to rise in these uncertain times. Inelastic demand is another aspect of the insurance market to consider. In general, businesses benefiting from inelastic demand will have steady, predictable sales influxes regardless of pricing changes.

Increased ESG reporting and investing

As investor awareness of the importance of environmental, social and governance (ESG) issues when making financial decisions grows, ESG concerns are gaining focus among regulators and stock markets. The International Sustainability Standards Board (ISSB) has responded to this by putting forth ideas to create a global standard for sustainability disclosures. With issues like climate change, environmental protection, biodiversity, and human rights issues coming to the fore, we can expect to see ESG concerns playing a major part in significant investment decisions going forward.

Investing in precious metals

While investing in gold and other precious metals may have decreased over recent years, we can expect to see a resurgence in such investments in 2023. There is a good chance that fair trading will pique people's interest in precious metals. These commodities provide wealth stability because their intrinsic value is widely acknowledged. Bullion may not make you wealthy. However, you won't probably become bankrupt either, as its value will never drop to zero.

Investments in technology to harness data

Access to and the ability to glean actionable insights from the large amounts of data generated daily is a major benefit for any organisation today. Outdated IT infrastructure and siloed data sets make it impossible for businesses to truly benefit from the massive amounts of data being generated. This is why we can expect financial institutions to invest in technology and infrastructure to manage and analyse large data sets to gain a competitive advantage and provide tailor-made services to their customers.

Widespread digitisation of financial institutions

Growing competitiveness in the financial industry is leading to financial institutions collaborating with fintech firms to digitise their operations. Modernising systems can boost operational agility, and this evolution is necessary to stay relevant in the modern era. Expect to see more and more banks and other financial institutions digitising their operating models to stay ahead of the competition.

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How can Infosys BPM help?

The Infosys BPM suite of Capital Market financial services is designed to optimise the performance of financial institutions. These capital market financial services are the ideal tools to help global asset and custodians, private equity firms, wealth managers, broker-dealers, investment banks, and financial information providers stay competitive as they prepare for the future. Reach out to know more.

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