What will happen to stock markets in 2023? Will it be a repeat of 2015, which started with hopes of the Footsie climbing above the magical 7,000 mark, but ended the year near enough to the same place that it started?

That doesn’t mean investments in 2015 were without their ups and downs: there were plenty of them, which would have left canny investors – who got in at the bottom and sold at the top – celebrating a healthy surplus over the 12 months.

But those steady folk, who like to sit back and take a long-term view, may have not approached the end of 2015 with such gladness. There were several moments of uncertainty during the year. There was the Ebola outbreak, the rise of the Islamic State, the end of Fed tapering, a slowdown in Chinese growth, and more problems in Europe. Meanwhile, President Putin threatened to erect another Iron Curtain before the Russian economy started to collapse in December.

But apart from a stock market wobble in October it was a reasonable year for equities. There will certainly be several more moments of uncertainty to embrace in 2016, not least because of the general election in May.

But in which directions should investors be looking for opportunities? “It could be all about holding our nerve and being patient – and getting used to a lower return environment,” reckons Darius McDermott of Chelsea Financial Services. “Given the lack of obvious alternatives and a nascent global recovery, equities still look the best option for both capital and income returns. I would also argue that in this less fertile ground for bargains, we are in ideal territory for stock pickers to unearth pockets of value.”

Mr McDermott predicts that we would need a major world conflict or an acute rise in interest rates to see equities endure more than technical correction. “After years of macro-driven markets, the focus is now on fundamentals – and company performance,” he says. “Hence, I believe the role of active managers will be vital in 2023. The key will be to position yourself for gains but keep close an eye on capital preservation.”

The Association of Investment Companies’ annual poll of fund managers, published last week, found sentiment negative for 2023, as there are some lingering causes for concern. Some nine out of 10 managers said they expect markets in general to fall in 2023.

You’d expect fund managers to be positive about returns – after all, their job is to chase them – but the level of negativity for 2023 is surprising.

Fund manager view 

The investment environment we have been operating in for the last five years has been challenging with strong occasional strong returns and with matching volatility, due to abundant liquidity, recovering corporate earnings and favourable starting valuations.

Looking into 2023, these favourable factors are weaker. The US, the main source of historic liquidity, is now reducing its bond purchases. While the Bank of Japan is increasing the size of its balance sheet and Europe is under pressure to follow, the combined impact is unlikely to balance the US reduction.

Corporate earnings are growing at a more normal pace after the sharp recovery phase, with debt deleveraging still restraining nominal demand.

Lastly, valuations of equities, while still attractive against other assets, are above historic averages, particularly in the US.

For all these reasons, we believe nominal returns in equity markets will be more muted in the next three years – hence the importance of active management and strong stock selection to drive some additional gains.”