Economic Slowdown Impacts Q4 2022 Small Cap...

Economic Slowdown Impacts Q4 2022 Small Cap Investing, but Create Opportunities

International Small Cap Review of the Fourth Quarter of 2022 | KayneCast 209

February 2, 2023

On this episode of KayneCast, Managing Director of Kayne Anderson Rudnick Jordan Greenhouse discusses the Q4 2022 stock market review with Craig Thrasher, Portfolio Manager and Senior Research Analyst for the KAR International Small Cap Portfolio. Together, they examine the challenges 2022 posed to international small cap investing and provide a 2023 stock market outlook.

Geopolitical Turmoil and Inflation Major Players in Q4 2022

Thrasher begins his stock market performance review by noting 2022 included multiple economic disruptions. The Russian invasion of Ukraine was incredibly disruptive to international investing. The KAR International Small Cap portfolio’s holdings in Russia, the Baltics, and Poland came under significant pressure following the invasion.  Indirectly, increased energy prices brought on by the conflict in Ukraine impacted the European and UK economies, leading to poor equity performance in those regions. Chinese Small Cap stocks, by comparison, performed in line with other international small cap stocks despite a resurgence of Covid-19 in the closing months of 2022.

Inflationary concerns were a central theme in 2022 and remain a concern for investors in the international small cap market heading into 2023. Higher interest rates caused equity and bond markets to suffer and disproportionately impacted growth stocks.

International Small Cap Investing and Stock Market Outlook for 2023

Thrasher notes international small cap investing faced challenging headwinds throughout 2022, and “we aren’t out of the woods yet.” Market concerns shifted from inflation in Q4 2022 and are now focused on economic slowing and the possibility of a 2023 recession.

From Thrasher’s perspective, these concerns may create opportunities for investors. Thrasher explained that “valuations have come down substantially, and much of the froth that we saw in the market in everything from crypto to meme stocks seems to be abating. We believe this is a good thing for the fundamental health of the market.” In his view, recession fears and higher interest rates are creating attractive valuations in certain parts of the market. In his experience, the international small cap stocks KAR invests in typically display their strength through their quality during challenging economic times.

Listen to the podcast to learn more about International Small Cap performance in Q4 2022, or read our complete 4Q 2022 Commentary, where KAR CIO Doug Foreman reviews market performance and the good and bad news as we look ahead to 2023.

This information is being provided by Kayne Anderson Rudnick Investment Management, LLC (“KAR”) for illustrative purposes only. Information contained in this material is not intended by KAR to be interpreted as investment advice, a recommendation or solicitation to purchase securities, or a recommendation of a particular course of action and has not been updated since the date of the material, and KAR does not undertake to update the information presented should it change. This information is based on KAR’s opinions at the time of the recording of this material and are subject to change based on market activity. There is no guarantee that any forecasts made will come to pass. KAR makes no warranty as to the accuracy or reliability of the information contained herein. Past performance is no guarantee of future results.

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