2022 has been a wild ride for many investors. But as the year draws to a close, there is optimism that the light at the end of the tunnel might be getting closer, and higher returns might once again be on offer. High inflation, supply chain issues, geopolitical tensions, China’s Zero-Covid policy, hawkish central banks and general uncertainty have all influenced markets one way or another this year. As we start to see some signs of peak inflation, and a dovish pivot from the Federal Reserve and China potentially opening up, it’s no surprise that some investors may be getting excited again.
But where could we see gains in the next 12 months? Here are my thoughts on which sectors and asset classes could help generate some tasty returns for investors.
Oil is not going out of fashion
If China were to reopen and finally ditch its Zero-Covid policy, this would be a very welcome booster-shot for the markets. China is the number one buyer of commodities in the world, so it would be positive for the sector overall. Oil prices, much like the rest of the market have had a tumultuous 2022, and in recent months have come under price pressure despite a strong start to the year. China reopening and a potentially weaker US Dollar would both help push commodities higher next year. We have seen legendary investor Warren Buffet come out and invest big on the ‘commodity supercycle’. If it is good enough for Buffet, then it is good enough for me.
Fixed Income could make a comeback
With the most aggressive cycle of raising interest rates ever from the Federal Reserve, it has been a brutal year for bonds. However, with expectations heightening for rates to be cut towards the end of 2023, investors will be keeping an eye on a recovery in the bond market. Lower inflation, peak rates and recession fears waning would be ideal for bonds to thrive next year.
Japanese Yen could finally have its day in the sun
The US Dollar has been a wrecking ball for many assets in the last few months, and in particular, FX pairs. Whether it be the Pound, Euro or the Yen, the US Dollar has outperformed massively against them all. Safe-haven flows and rising interest rates have been the driver for this, but as we get closer to the top of the Fed rates cycle, and with general sentiment improving, certain currencies now look more appealing. One of these is the Japanese Yen, which next year may well look attractive to investors as the Bank of Japan plays catch-up and starts to raise rates. This, added to a weakening Dollar, could be the perfect cocktail for the Yen delivering returns in 2023.
Tech stocks bounce back
Coming off a 10+ year bull run, 2022 saw the rug pulled beneath the feet of tech stocks, with share prices for some of the biggest companies in the world coming under severe pressure. With a potential change in monetary policy from the Fed and, in turn, investor risk appetites improving, many will be looking at tech companies which have good growth, high margins and solid balance sheets to add to their portfolios in 2023. Many argue that tech stocks are the new defensives, as they’re recession proof – we can’t live without phones, laptops and tablets. While the correction may have helped make some prices more tolerable to investors, if the ongoing chip shortage is sorted soon, tech could well have another renaissance.
2022 has been a tough year for investors, following the highs of 12 months prior. That being said, retail investors have not been deterred, and let’s all hope for some tailwinds in 2023 as markets try to stage a recovery.
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AU disclaimer:
This communication is general information and education purposes only and should not be taken as financial product advice, a personal recommendation, or an offer of, or solicitation to buy or sell, any financial product. It has been prepared without taking your objectives, financial situation or needs into account. Any references to past performance and future indications are not, and should not be taken as, a reliable indicator of future results. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication.