Key Investment Themes in 2023 Investors Should Look Out For

After a rough year of rising interest rates and inflation, experts are optimistic about 2023 as the market conditions are turning more favourable slowly but surely. Although, there are still volatilities ahead and things are bound to get tough before it gets easier.

Investors are playing it safe now amidst the uncertainty. Should investors continue to play safe and seek shelter in bonds and money markets? Is it time to “buy the dip” for equity? Where are the opportunities in the markets today?

Here are the key investments themes for 2023 the investors should keep an eye for:

China’s Reopening

Global recovery will be supported by China’s reopening as Chinese authorities are shifting away from its strict zero-Covid policy by unwinding all Covid restrictions as well as lifting its border closures to allow for international travel. The lifting of these restrictions will boost growth especially on outbound tourism and consumption-led recovery. Asia will become the biggest beneficiary as China fully reopens given the proximity and extensive trade ties.

Possibility Asia Outperforming the Rest

As mentioned, Asia, the biggest beneficiary from China’s reopening would provide a lift to the region and the Asian equity market is expected to perform better compared to the United States on a relative basis. According to AHAM Capital Asset Management, the United States earnings projections appears to be too optimistic with EPS forecasts for 2023 only cut by 7% whilst the Asian markets were revised more than 24% lower. Nonetheless, it is important to monitor how deep or shallow the global slowdown will be as the impact of higher interest rates beginning to sink in and chip away growth. More catalysts are needed in order for Asian markets to uphold and deliver stronger upside potential.

China’s Recovery Benefits Asia

Source: Morgan Stanley (29^th November 2022)

Malaysia’s Recovery Momentum Continues

In a nutshell, Malaysia’s recovery momentum shall continue as the economic fundamentals remain strong with GDP expected to be one of the strongest in ASEAN this year. The corporate earnings are also forecasted to rebound drastically following the one-off prosperity tax last year that dampened the earnings. With the strengthening of political stability and compelling growth story, foreign inflows are expected to grow this year and these foreign buying could positively drive markets higher. 

Bonds are Making a Comeback

On bonds and stocks, bond investors may see some relief this year as the rates is expected to be less volatile following a slower pace in rates adjustment. Slower growth outlook is beneficial for rates. A market insight from JP Morgan Asset Management has also stated that they are excited about bonds than they have been in over a decade as bonds have pre-empted the macro troubles set to unfold in 2023 and look increasingly attractive now.

On the credit side, AHAM Capital Asset Management opined that valuations are also turning attractive especially with higher yields which give long-term investors an attractive entry point to rebuild exposure. The board-based sell-off in equity markets has also left some stocks with strong earnings potential trading at very low valuations. JP Morgan Asset Management believe that there are opportunities in climate-related stocks and the emerging markets and have higher assurance in cheaper stocks which have been discounted from various bad news but are offering dependable dividends.