2022 was a dreadful year for investors. Markets were down across the board due to soaring inflation, rising interest rates, the horrific war in Ukraine, and now, a looming global recession.
How did the major markets fare in 2022?
Comparing the performance of the three regions below, we can find a similar trend of decline followed by a brief run-up in October as more encouraging news emerges, including the slowdown of inflation and the recent reopening of China.
You might also like
US
Europe
Asia
Nevertheless, we should persevere; investing is a long-term game, and you should not abandon it based on a single year’s results.
As you review your portfolio, here are some industries and stocks that could be interesting buys in 2023.
What’s going to happen in 2023?
Prior to that, let’s examine the macro factors for 2023.
Inflation should start to fall in the new year, albeit remaining above central bank targets, as economies begin to stagnate, the labor market weakens, and supply chain pressures continue to relax. With this, interest rate hikes are projected to end in the first half of 2023 while remaining elevated.
Given the early concern about inadequate gas supplies for the winter, Europe has fared well since the energy crisis. Unless temperatures plummet and force Europe into a severely cold winter for the first few months of 2023, Europe is likely to avoid the need for energy rationing.
On the other side, China is expected to open up to the global economy, relieving the global supply chain that has plagued the world for much of 2022. While the country continues to see a surge of Covid-19 cases, which will likely impede the process of reopening, pent-up demand, as observed around the world, is likely to replicate in China. This would benefit both domestic and international businesses.
All of this points to a bullish view for the equity market in 2023, offering investors an excellent opportunity.
Risks to watch in 2023
But it won’t be all rosy, here are a few things to think about.
The yield curve had already inverted (interest rates on long-term bonds fell lower than those on short-term bonds). Yield curve inversion has been a solid indicator that a recession is imminent, causing some investors to be apprehensive. According to analyst reports, many are foresing a recession in 2023. Having said that, the economy is not the market. While 2023 is anticipated to be a challenging year for economies, most of this has already been priced into the stock market, making it a more appealing proposition to begin deploying in 2023 rather than waiting for the recession to be declared and over.
Another source of anxiety is the state of future profits. Companies will shortly announce their fourth-quarter earnings, which concluded on 31 December. Given that things are just beginning to improve, fourth-quarter numbers could be disappointing, causing the stock market to fall.
Also, if a recession occurs, earnings expectations are likely to fall further, according to the general consensus. Whether you should buy now or wait then hinges, in my opinion, on the individual stock rather than the whole sector.
All in all, while we anticipate a mild recession, 2023 appears to be an excellent year to start deploying your capital. If you put a gun to my head, I would say invest in China now, whereas for the US you can afford to wait a bit more for its earnings.
Alright, with that, let’s have a look at some stocks you might be interested in.
23 stock ideas for 2023
| Stock | Market | Sector |
|---|---|---|
| Microsoft (NASDAQ: MSFT) | US | Technology |
| Amazon (NASDAQ: AMZN) | US | Technology |
| Alphabet (NASDAQ: GOOG) | US | Technology |
| Salesforce (NYSE: CRM) | US | Technology |
| Taiwan Semiconductor Manufacturing (NYSE: TSM) | US | Technology |
| Costco Wholesale Corporation (NASDAQ: COST) | US | Consumer staples |
| Coca-Cola Company (NYSE: KO) | US | Consumer staples |
| Exxon Mobil Corp (NYSE: XOM) | US | Energy |
| Chevron Corp (NYSE: CVX) | US | Energy |
| Valero Energy (NYSE: VLO) | US | Energy |
| Capitaland China Trust (SGX: AU8U) | Singapore | Real Estate |
| Mapletree Pan Asia Commercial Trust (SGX: N21U) | Singapore | Real Estate |
| Frasers Logistics & Commercial Trust (SGX: BUOU) | Singapore | Real Estate |
| DBS (SGX: D05) | Singapore | Financial |
| UOB (SGX: U11) | Singapore | Financial |
| OCBC (SGX: O39) | Singapore | Financial |
| BYD (HKG: 1211) | China | Consumer Discretionary |
| Trip.com (HKG: 9961) | China | Consumer Discretionary |
| Huatian Hotel Group (SZ: 000428) | China | Consumer Discretionary |
| Alibaba (HKG: 9988) | China | Technology |
| Tencent (HKG: 0700) | China | Technology |
| Meituan (HKG:3690) | China | Technology |
| NetEase (HKG: 9999) | China | Technology |
You may or may not agree with my list, here’s why I’ll be keeping my eye on these 23 stocks:
US
- Technology
The past year was undoubtedly difficult for the technology sector, but the long-term trend remains. Several opportunities are available in this industry as we look at long-term themes, such as the shift to hybrid working and the continued adoption of cloud computing.
Almost every firm in every industry is now striving to leverage technology to become more connected to its customers, accelerate development, and operate more effectively. Many businesses are undertaking multiyear digital transformations, and this trend is unlikely to slow down. In this view, companies providing technology to aid these transitions could benefit from this development.
This includes, but is not limited to, Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOG), and Salesforce (CRM). In 2022, these companies were cutting costs amid the worsening economy. Together with a strong balance sheet and a tailwind for the sector, these companies are likely to come out of the downturn stronger.
It is also worth noting that these shifts are being driven by semiconductors, the demand for which, particularly for high-end processors, is expected to stay high in 2023. In this arena, Taiwan Semiconductor Manufacturing (TSM) maintains its leading position as a manufacturer of sophisticated chips and is expected to keep its title in the near term.
- Consumer staples
Consumer staples have remained relatively resilient in 2022, remaining flat throughout the year. The industry was able to withstand the impact of interest rate increases since it largely consists of essential consumer goods. Think about household items, food, beverages, and hygiene products. These are items that individuals will continue to use despite rising prices.
If the anticipated mild recession occurs in 2023, we should expect this industry to perform well for the same reason. While consumers can reduce discretionary spending, they will continue to purchase necessities such as food and personal care products.
Costco Wholesale Corporation (COST) and Coca-Cola Company (KO) are two stocks in this sector that could do well.
- Energy
This is a riskier bet, but it is something to consider. The energy sector came in strong in 2022, as tight supply and surging demand fuelled high energy prices. Going into 2023, assuming only a mild global recession (no severe global recession), I anticipate demand for oil and gas will continue to rise as countries, especially China, recover from the pandemic. Together with supply constraints caused by the Russia-Ukraine war and the long lead time to ramp up additional production, energy prices are expected to stay high, and energy corporations may continue to post strong earnings for at least the first half of 2023.
In this view, Exxon Mobil Corp (XOM), Chevron Corp (CVX), and even companies in the refining business like Valero Energy (VLO) could be explored.
However, this is a risky play since, in addition to anticipating the market, we must also consider probable political ramifications. This is due to the fact that much of the oil we have now comes from a small number of countries. Most of these countries are members of the Organization of Petroleum Exporting Countries (OPEC), which strives to exert influence over the market price of oil. With this element present, it is no longer possible to anticipate only the demand side equation but also the supply side, which is much more difficult.
Singapore
Singapore stocks have fared reasonably well in comparison to their global counterparts. However, one sector that stands out as a notable underperformer is REIT.
- Singapore REITs
Singapore REITs had a difficult period due to a shortage of tenants during the Covid Phase, followed by a steep increase in interest rates.
Though different sectors performed diversely during the Covid pandemic, the increase in interest rates last year hurt most REITs. As interest rates rose, it became more expensive for REITs to undertake new debts or roll over existing ones. As a result, several REITs’ bottom lines weakened.
Nonetheless, despite the adverse market environment, REITs continue to demonstrate excellent fundamentals such as occupancy rates and net operating income, even though those fundamentals have dropped slightly since the pandemic’s peak.
With interest rates possibly stabilizing in the first half of 2023, we believe the REIT market is nearing its bottom. While rising interest rates will continue to impact in the first half of 2023, the second half may see a comeback, particularly for well-capitalized REITs.
In that regard, more prominent REIT players would be preferable. REITs such as Capitaland China Trust (AU8U), Mapletree Pan Asia Commercial Trust (N21U), and Frasers Logistics & Commercial Trust (BUOU) are some instances.
You might be more interested in the first two REITs because they hold Hong Kong and China properties. Both of these REITs are likely to have more robust operating results in the coming quarters as a result of the announced reopening.
Frasers Logistics & Commercial, on the other hand, suffered immensely in 2022 as a result of currency fluctuations since the majority of its assets are located abroad. If currency movements improve or at least stabilize in 2023, FLCT’s NAV and distributable income are anticipated to improve.
- Singapore Banks
Following that are the three local Singapore banks, DBS (D05), UOB (U11), and OCBC (O39), which have fared well in 2022 as interest rates rose, boosting profitability.
With the elevated interest rate, Singapore’s three local banks are anticipated to fare well in the near term. Even in the event of a moderate recession, given the robust capital ratio, Singapore banks appear to be well-positioned to cover possible credit defaults.
Nevertheless, investors should exercise caution because banks are cyclical stocks. If there is a severe recession in Singapore or elsewhere in the region, bank stocks are likely to suffer.
With this in mind, investors considering Singapore Banks may prefer OCBC, which has an insurance arm, Great Eastern. Having an insurance arm allows OCBC to be more resilient, especially during a downturn as most individuals and businesses would likely retain their insurance policies.
China
First up, I have to acknowledge that Chinese stocks have had a rough couple of years. China’s zero-covid policy and company crackdown have dragged down the entire Chinese stock market. Aside from that, investors are worried about the deterioration of relations between the United States and China.
With this in mind, it is understandable for skeptical investors to shun this market.
Nonetheless, 2023 could be a wonderful year for long-term China bulls, and here are the signs.
First, Beijing is drastically relaxing the zero-covid policy; while it will take some time for the cases to achieve equilibrium (perhaps tightening and loosening like what we saw in Singapore when we first opened), once there, everything will be back to normal. Malls will reopen, citizens will begin to travel, and individuals will head back to work.
If China manages to transition into the new norm, consumer discretionary stocks will likely improve.
This includes:
- BYD (HKG: 1211), the world’s largest EV manufacturer and a major player in battery storage
- Trip.com (HKG: 9961), a China-based online travel company
- Huatian Hotel Group (SZ: 000428), a China-based hotel management company
Recently, China has sent another major signal of support for Big Tech companies following the tech crackdown that has driven several of these equities to rock bottom. Following the conclusion of a two-day Central Economic Work Conference, China’s leadership underlined its commitment to the “digital economy” and to improving its “normalized regulatory” performance.
As the country reopens its borders, it has sought the support of these Big Tech corporations to play an integral role in driving economic growth, creating jobs, and engaging in international competition.
If indeed the crackdown has ended, platform companies such as Alibaba (HKG: 9988), Tencent (HKG: 0700), Meituan (HKG:3690), and NetEase (HKG: 9999) might benefit.
That being said, don’t expect the CCP to change its policy. While these corporations are no longer restrained, they are unlikely to run wild as before. CCP would keep an eye on them and could use the whip again if they stepped out of line.
Conclusion
With that, we have 23 stocks that could perform well in 2023. (share your list in the comments below!)
Some of these stocks are laggards in 2022 caused by unfavorable macro-environmental, while some are beneficiaries like oil companies which could continue to benefit as demand persists with China’s reopening.
Nevertheless, before you buy any of the stocks mentioned above, I would advise you to thoroughly research each business and examine its operating performance and outlook.
It is impossible to anticipate how the stock market will perform in the future. The market is influenced by a variety of factors, including economic conditions, company-specific events, and global events, and it can be impacted by unanticipated developments or events.
As a result, it is critical to approach investing with a long-term mindset and be prepared for market ups and downs, as short-term price changes are a natural aspect of the stock market. Diversifying your portfolio by spreading your investments over a variety of sectors, industries, and asset classes can also assist in minimizing risk.
With that, happy investing and a prosperous 2023!
