Investors grow stronger due to rising interest rates

Falling valuations are creating a unique opportunity for investors with capital available.

The outlook for 2023 may seem bleak, but investors with an eye on the long term should sense an opportunity among the uncertainty.

Despite the economic downturn, the current market is creating the perfect conditions for investors to acquire bigger stakes. After all, there are very few competitive deals to be closed when everyone is optimistic about the future — and that clearly isn’t a problem as we look at the market environment in 2023. The war in Ukraine, rising energy costs, continued supply chain disruptions and big government debts from Covid are all contributing to a rise in both inflation and interest rates.

Economists at the World Bank warn that the global economy will grow at its weakest rate in nearly three decades this year and is “dangerously  close to falling into recession”.

Stock prices have already felt the impact. The Eurofirst 300 index of Europe’s biggest stocks fell by 15% in the months after Russia invaded Ukraine on February 24  2022. And it remains below its pre-invasion level today.

Tech stocks have suffered most

The prospect of a global recession in 2023 may hurt stocks even more, with pessimism particularly high in the tech sector. Many of the industry’s biggest companies have laid off thousands of workers, including Meta, Amazon and Netflix.

It’s a dramatic turnaround from the Covid boom, which resulted in remote working, contactless payments, online shopping and home entertainment. All these developments encouraged tech companies to make big investments, with the expectation that the online consumer behaviour would remain the same after the lockdowns had lifted.  but the harsh reality of the current situation made it much harder to sustain this level of investment.

Falling tech valuations have created a domino effect. A dramatic drop in the stock price or a weak investment round for an individual company has led to lower valuations for industry peers.

European tech firms have seen some of the biggest changes. Swedish payments company Klarna saw its valuation drop 85% in 2022 (from $45.6 billion to $6.7 billion) after a difficult fund-raising.

What does this mean for investors?

The current market conditions are clearly a buying opportunity for investors — and perhaps the best in a generation.

Many companies are finding it difficult to raise capital given the weak market sentiment and challenging conditions. This has created a buyer’s market, allowing investors to acquire bigger stakes with better terms. As a result, they are securing much greater decision-making power than was previously available.

While some companies may be priced correctly at their current valuations, many are under-valued and offer good long-term value. The digital dividend from Covid is real and will persist long after the current economic cycle turns around. There are favourable deals available for investors with the capital available.

How can buyers take advantage?

Finding the right companies to invest in is critical. Dealsuite offers a complete platform of tools that can help investors screen potential targets, contact the right people and manage deals from beginning to end.

Get in touch with us to find out how you can take advantage of this unique opportunity.