Harvey Jones
03.01.2023

2022 was tough. Things can only get better in 2023
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Few investors will look back on 2022 with much fondness. Especially those who spent the previous decade loading up their portfolio with US tech and Bitcoin.
War in Ukraine, the energy shock, Chinese Covid lockdowns and the return of inflation after 40 years popped every bubble blown by super-loose monetary policy.
That sound you can hear is the air coming out of Tesla, Amazon, Meta and Netflix, as well as meme stocks, non-fungible tokens (NFTs), Special Purpose Acquisition Companies (SPACs) and every crypto under the sun.
Even the bond market crashed after a 40-year bull run, while supposed safe haven asset class gold failed to shine.
There is a lot of doom and gloom around right now but I’m feeling surprisingly bullish about 2023. While the US Federal Reserve ended the year talking tough on interest rates, at some point it will “pivot" and that’s when the fun begins.
Investing is cyclical and the next bull market usually begins when everybody is still down in the dumps.
So what can we expect?

The stock market

Everybody knew the US tech couldn't fly forever, and this year the sector duly crashed back down to earth.
The Nasdaq is down a third while Amazon, Netflix and Tesla lost half their value and Facebook (now Meta Platforms) saw its stock fall two thirds.
London’s FTSE 100 index was the surprise performer, despite the UK’s political and economic woes, as investors rotated back into defensive, dividend-paying blue chips in the financials, mining, healthcare and utility sectors.
Tom Stevenson, investment director for Personal Investing at Fidelity International, says investors should avoid the temptation to become more bearish as the market falls. “Next year should be much better as stock markets look through the recession to better times ahead. Shares are likely to recover ahead of the real economy.”
Funds to consider: iShares Core S&P 500 ETF, Lyxor MSCI All Country World UCITS MSCI World UCITS ETF or the SPDR Portfolio Developed World ex-US ETF.

Emerging markets

It’s been almost two decades since the BRICs were all the rage and Brazil, Russia, India and China have endured mixed fortunes since then.
Last year tough on emerging markets, which have been hit by slowing global growth, supply chain issues and the strong US dollar, says Chetan Sehgal, lead portfolio manager at the Templeton Emerging Markets Investment Trust. “They still have long-term growth potential, though, as their economic growth continues to outpace developed markets.”
Emerging markets are home to companies with exposure to sustainable technologies “from solar and electric vehicle battery producers to semiconductor designers and manufacturers”, Mr Sehgal adds.
Now could be a good opportunity for long-term investors to buy them ahead of the next growth surge.
Funds to consider: Vanguard FTSE Emerging Markets ETF, iShares Core MSCI Emerging Markets or Lyxor MSCI Emerging Markets.

Bonds

2022 was the year the unthinkable happened, and the stock and bond market both fell at the same time.
The classic 60/40 portfolio (60 per cent shares, 40 per cent bonds) was supposed to withstand every scenario but fell 20 per cent this year, its worst return in a century, according to Bank of America research.
Bonds pay a fixed rate of interest which makes them less attractive when rates are rising and savers can secure an improved return on cash.
A Fed interest rate pivot could quickly change that and bonds look cheap after this year’s falls, says Mr Stevenson. "As the inflation and interest rate storm blows through the financial markets, they could be the biggest winners in 2023.”
Funds to consider: iShares 0-5 Year TIPS Bond ETF, Vanguard Total International Bond ETF and SPDR Portfolio Aggregate Bond ETF.

ESG 

After three blockbuster years for investors in ethical, social and governance (ESG) stocks, the sector sold off with everything else in 2022.
ESG is designed to offer investors growth without the guilt, but has also fallen prey to greenwashing, where asset managers badge funds as sustainable and socially responsible when they’re really not.
2023 is likely to bring further ESG uncertainty, says Leon Kamhi, head of responsibility at Federated Hermes."Well-intentioned regulators seeking to protect investors have likely added to the turmoil with unclear and significantly burdensome requirements which are unlikely to help develop a sustainable economy."
Ethical investing is a personal decision but investors must resist the ESG hype and keep at least one eye on the bottom line.
Funds to consider: iShares ESG Aware MSCI USA ETF, Invesco MSCI Sustainable Future ETF and Vanguard ESG International Stock ETF.

Gold

After peaking at $2,074.60 an ounce in early March, the gold price slumped to end the year at around $1,800.
Gold pays no interest so looks less attractive when interest rates are rising. The strong US dollar made it pricey for overseas buyers, as the precious metal is priced in dollars. Chinese economic issues didn't help, hitting demand.
Gold is supposed to be an inflation hedge so its performance this year was “surprising” but not all bad, says Maxwell Gold, head of gold strategy at State Street Global Advisors. “On a relative basis, gold outperformed global stocks and bonds, and provided portfolio diversification.” Gold may glitter again once the Fed stops tightening, buoyed by “ongoing geopolitical turmoil driving market volatility and demand for downside protection”, he says.
Funds to consider: SPDR Gold Shares, iShares Gold Trust and VanEck Gold Miners ETF.

Crypto

2022 was another scandal-plagued year for alt-coins, with bitcoin crashing from $67,000 to $16,000, and the arrest of Sam Bankman-Fried, founder of collapsed crypto exchange FTX, on fraud and conspiracy charges.
It is hard to argue with JPMorgan Chase CEO Jamie Dimon’s view that the sector is a “complete sideshow” and crypto tokens are like “pet rocks”. Yet it seems that nothing can deter die-hard crypto investors.
The truth is that Bitcoin probably will recover after the Fed pivots and investors get their mojo back, but please, tread carefully.
While early bird Bitcoin buyers made fortunes, the losers have outnumbered the winners for years.
Here we go again
With luck, we will look back on 2023 with a much greater degree of fondness. But we need to prepare for it today.
Investors who wait until the recovery is assured will miss it.

Harvey Jones has been a UK financial journalist for more than 30 years, writing regularly for a host of UK titles including The Times, Sunday Times, The Independent and Financial Times. He is currently the personal finance editor of the Daily Express and Sunday Express, and writes regularly for The Observer and Guardian Unlimited, Motley Fool and Reader’s Digest.

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