When setting the stage for 2023, it’s important to consider some of the lessons of 2023, according to Flavio Carpenzano, Capital Group investment director, specialized in fixed income investments. Not only was it a volatile year, but there were strong predictions that the year would see a recession, though it didn’t manifest (or at least not in the way that was expected). One of the key takeaways is not to time the market, rather to keep a diversified portfolio: “No one last year wanted to invest in high-yield because of the risk of recession, and what happened is that high-yield was one of the best performing asset classes in 2023,” Carpenzano says.
But clients may not have yet missed the rally, plus inflation is taking a downward turn: “This is a strong tailwind for both fixed income and risky asset classes, like equities,” he adds.
In equity markets, AI saw some “prime time” in 2023, as Christophe Braun, investment director specialized in equities, explains. Big tech outperformed global equities, and AI helped generate those returns. “Interestingly, when you look back at historical market data, it will show you that after a very narrow driven market – this is when only a few stocks drive the entire market performance, like we experienced last year, the equity market leadership tends to become much broader again, with more diversified sources of alpha for investors across different sectors and less dominance from a group of stocks, like the “Magnificent Seven” (made of Apple, Microsoft, Alphabet, Amazon, NVIDIA, Tesla and Meta) or a single theme, like AI,” Braun explains.
The challenge will be in separating hype from reality. Braun also notes the broader opportunity with conventional sectors, such as healthcare and so-called “smart” industrial.
Indicators suggest corporate earnings will rebound in 2024, while there may also be opportunities developing as investors move cash off the sidelines so as not to miss out on opportunities to position their portfolios for long-term success.
Meanwhile, another question into 2024 is on whether this will be the year emerging markets get more time in the spotlight. Natalya Zeman, investment director specialized in emerging markets, explains that emerging markets have lagged for over a decade in comparison to US markets, due to low capex, low inflation, strong USD environment, to name a few. “When you think about the US, any disappointment at all, a hard landing… these potential pitfalls could benefit equities outside of the US,” she explains. “At the same time, if you take China, you don’t need a complete recovery but just a reversion to the mean to see a steep change, compared to where we’re at today.”
During the podcast, each of the investment directors provide the lessons learned from 2023 and explain what they see as the top opportunities—and risks—for 2024.
For more insights, download Capital Group’s Outlook 2024 report, click here.
About the podcast
This episode is part of the “Investing for the long term” podcasts series featuring Capital Group. These podcasts, produced and hosted by Delano and Paperjam, explain some of the key challenges investors are facing and the investment opportunities related to those challenges.
To listen to Capital Group’s podcasts, click here.
