2023 Global Investment Update
Looking back on 2023, it was an eventful year in many respects. In global financial markets, interest rates (on 10-year Treasuries) reached 5% in the US before falling back, while stock markets surged forward from March, driven mostly by seven large-cap US technology companies. On the global stage, the broad stock market index finished 24% higher, as did the S&P500. The Japanese market which was strong in 2022 up until the first quarter of 2023, trailed the broad index, with a return 5% lower. Emerging markets, including China, were lackluster as a group, finishing with gains below 10% for the year. Perhaps most surprisingly was the London stock exchange, which only delivered 3%. Dissecting the US market, the tech heavy Nasdaq rallied 43%, whilst the Dow Industrials underperformed the broader S&P, gaining a more modest 14%.
In many ways, 2023 was a recovery relief-rally after the beating share prices took in 2022. Looking at 2 year returns (before the sell-off), markets in many cases are flat in many cases (MSCI AC World +1%) and taking the start date back to the end of 2019, just before Covid, average annual returns for global equities (MSCI AC World) are at 9% p.a., very much in-line with the 10 and 30 year long-term average returns of 8% p.a. in USD.
So, one could say that recent times have been a boon for stock-pickers …who can get it right, but longer-term, things even out, with different market and economic conditions driving different markets at different times. Right now, healthcare, financials and resources companies are attractively priced.
Where are things headed? Does anyone know? A recent poll of fund managers shows them to be as optimistic about market returns as they were since in January 2022 – just before the market fell 20%! Interest rates, driven by inflation expectations, are set to remain the chief driver of stock markets. As inflation in the major economies has fallen back to more acceptable levels, so the expectation is that interest rates will be lowered, creating liquidity and driving financial asset prices up. The US labour market has definitely softened, allowing companies to keep wages in-check. This together with new supply chains being created to replace supply from China has for the moment allayed anxiety around continued price increases and therefore continued high interest rates.
If we stick with fundamentals in making our investment decisions – solid company earnings, visible sales growth and well-managed balance sheets, whilst keeping a keen eye on total investment costs, you can expect decent gains. Uncertainty and volatility, however remain unavoidable when investing in shares.