There is no denying that 2022 was a turbulent year. The majority of investors will have been disappointed with the performance of their portfolios. While gloom remains the prevailing mood as 2023 gets into gear, there are some positives among all the negative noise. Here are three glimmers of hope for investors in 2023.
1. UK equities outperformed at the end of 2022
According to the MSCI United Kingdom Index, the UK market had risen by 7.2% by the end of 2022, compared to a -7.4% drop for global equities, as per the MSCI World Index. After 10 years of consecutive underperformance for UK equities and against a backdrop of political chaos, that’s surprising to say the least. However, it certainly isn’t linked to a strong UK economy!
Around 75-80% of the UK’s stock market revenues come from multinational conglomerates such as Unilever, Shell and AstraZeneca which are not UK-dependent. The global revenues of these big hitters compensated for the falling revenues of UK-based companies. UK equity investors are advised to focus on sectors that are stable in the global economy, such as energy, consumer staples, mining and chemicals and to avoid those that are over-reliant on UK domestic consumption such as retail, hospitality and travel.
And of course, putting all your eggs into the UK basket is a bad idea. While UK equities have a place in a well-balanced portfolio in 2023, geographical and sectorial diversification remains key, as is a long-term investment horizon.
2. The outlook for bonds is improving in 2023
According to one academic study and numerous market commentators, bonds, usually a dependable fall-back option in the face of falling equity prices, had their worst year ever in 2023. This is largely due to aggressive interest rate rises.
In better news, Evelyn, our investment management partner, is predicting an improving outlook for bonds with the prospect of positive above-inflation returns.
Evelyn’s summary on bonds: ‘2022 has undoubtedly been a tough year for fixed income and inflationary pressures have not gone away. However, investors are well-compensated for the risks they are taking, with yields at decade highs and the bad news on interest rates largely reflected in market pricing. Fixed income may be able to resume its traditional role in a portfolio, providing income, capital stability and diversification.’
3. Dividend yields are high
Caution will continue to be the default option for most investors in 2023. Many fear that the volatility that characterised markets in 2022 will continue this year. One tool in the armoury of defensive investors is income-generating investments in the form of dividends.
Dividend yields are currently high in the same stable sectors that are shoring up the equity market: energy, utilities, consumer staples, mining, materials, and low in tech.
Adding some dividend-generating investments to your portfolio in 2023 could provide some protection against inflation, volatility in the markets and current global economic uncertainties.
If you have any concerns about your portfolio or you would like to discuss adjustments based on the positives mentioned in this article, please get in touch with your financial adviser.
If you don’t have a financial adviser, or would like a second opinion on your current portfolio, feel free to get in touch with Infinity. We are the number one choice for expatriates in Asia looking to build wealth for a secure financial future.
And don’t forget the biggest positive of all when it comes to the stock market: with a sufficiently long-term investment horizon (10+ years), over the last century, equities have always delivered in the end.
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