Brace yourself for these seven challenges in the year ahead

Staying one step ahead of investment markets is never easy. Here’s what to look forward to and what to beware of in 2023.

As an investor you must be ready for just about anything, including the seven potential surprises of 2023.

After what we just went through in 2022, your capacity to be surprised may well be diminished.

But never fear, the investment market offers infinite possibilities to catch you off guard. If you have been reading the Wealth section in recent weeks, we have covered the distinct possibility that both property and the share market could recover by the end of 2023. Inflation may subside and the need for rate rises may ebb.

Alternatively, we could just as easily have another year of rotten markets, as many economists suggest.

It’s time to think ahead. As an investor you must be ready for just about anything, including the seven potential surprises of 2023.

Government intervention skews the markets in which you invest

One of the fundamental changes to the Australian economy in 2022 was the return of government intervention in markets. The headline move has been the Federal Government move in the gas and coal sector, where there are now capped prices. At its most extreme in the state of Victoria, the state government bought back into the State Electricity Commission of Victoria (SECV).

Victorian Premier Daniel Andrews recently suggested the planned return to the SECV was the winning stroke in his recent election victory.

The markets are now wide open for more government intervention beyond the energy sector. What will be the first cab off the rank? A potential move to cap rental increases in private property. The 30 per cent lift in rental prices last year suggest that residential property is next in the firing line after the energy sector.

Your super settings get ripped up in the May Budget

Treasurer Jim Chalmers kept his powder dry in his first federal budget. In May 2023 he gets a second chance in a political climate where the electorate now accepts “re-regulation”.

The current tax concessions on super are a sitting duck for the Labour government.

Federal Treasurer Jim Chalmers. Picture: Monique Harmer

The Albanese government is widely expected to put a cap on the amount of super you can have in the super system. In fact, it has been encouraged to do so by key stakeholders.

Chalmers may not leave it at that. He is also likely to freeze a planned indexation increase in tax-free super, which is due to move up $200,000 to $1.9m and he may well change contribution caps too.

Despite your best efforts you lose money in a scam

Smart investors don’t get caught in scams do they? The evidence suggests otherwise. Remarkably sophisticated scams are now hitting Australians at every point in the financial system. HSBC this week outlined no fewer than 12 scams currently reeling in victims across the financial system. Let’s assume the dangers of romance and cryptocurrency scams are minimal for our readers but here’s two recent developments you need to know.

Online scams are becoming increasingly sophisticated.

The “hi mum/hi dad” scam: This is where criminals pose as one of your kids and pretend they need money urgently because they have lost their phone – do you know your kids’ phone numbers? Write them down!

Separately, we have the “mandate” scam: This is devilishly clever where a legitimate payment to a legitimate organisation gets hijacked on the way and the scammer asks you to redirect the payment to an account they control. We are in the era of cybercrime – from Medibank to Optus, to your backyard. Try to keep up to date in protecting yourself against cybercrime but accept anyone could be hit.

Your salary finally gets a lift

The surprise of 2022 might have been the return of inflation, but it did not come with a parallel lift in salaries and wages.

The chances are you have been doing your investments off the back of an unchanged salary package. But in mid 2023, continuing low levels of low unemployment and the accumulation of wage pressure should begin to make a difference.

Westpac chief economist Bill Evans reckons that greater momentum in wages growth than we currently envisage, that would stem from rising inflationary expectations, represent the dominant risk to our central cases – ie that cash rates will peak at 3.85 per cent (from 3.1 per cent today).

Evans believes that wage growth will be hitting 4.5 per cent by June 2022. If that pay raise did not come through for you in 2022, then mid 2023 is your chance.

You are now competing with industry funds in every area of the market

As the former titans of retail super, such as AMP and MLC, struggle for relevance, big super now effectively means industry funds such as Australian Super, Cbus etc – and they are about to come into their own in 2023.

On the sharemarket, the ability of the industry funds to work in tandem and get what they want is only beginning. This year they removed Sydney Airport, an investor favourite from the ASX. More recently, they leaned very heavily on infrastructure stock Atlas Arteria.

Watch for more of this action on the stock exchange in the new year.

In residential property, the federal government is actively inviting industry super funds into the housing market, and Cbus has said it has $500m ready to invest. In reality, these funds will not go into the housing market unless they get big subsidies from the government. If that happens, then investors in the property market will find a major new player has appeared on the scene which has the power to change the game.

Your crypto bet remains alive

2022 has been a nightmare for the wider world of blockchain and cryptocurrency. But the story is far from over. Hopefully for most investors, crypto was a bet on the side – and that bet is currently a big loser.

For every bitcoin sale, someone is on the other end of the transaction buying it up.

But keep in mind as bitcoin trades lower, that someone is buying that crypto on the other side of the trade. Over the past five years bitcoin’s price is still up 30 per cent; it is down 65 per cent year to date – but it is not down to zero.

At $US16,800 per bitcoin, it is still alive and kicking, with or without FTX.

Financial advice becomes tax deductible

All the attention in the advice sector has been on Michelle Levy’s much anticipated Quality of Advice review, but quietly the ATO has been doing something equally important. The ATO has just issued an update, where it says it will be reviewing the longstanding rules that most financial advice is not tax deductible.

Ongoing financial advice is deductible but not the advice that really matters – first-time advice to new investors. The arrangement goes back to old laws based on a common principle that operational expenses are tax deductible but not establishment expenses. Advisers hope the ATO could issue new guidance on the issue in time for the new financial year on July 1, 2023.

James Kirby’s five-part Investing Bootcamp summer series for The Australian’s Money Cafe podcast begins this week and runs weekly until January 19.