Specialist in Asia Pacific, China, India and South East Asia and Global Emerging Market equities.

Discover more

Stewart Investors manage investment portfolios on behalf of our clients over the long term and have held shares in some companies for over 20 years. They launched their first investment strategy in 1988.

Discover more

2023 – the year ahead across asset classes

7 investment themes for 2023

The year 2022 saw the end of an era of low rates, low inflation and asset price growth. As we head into 2023, the world’s economies have changed dramatically, with an economic tightening under way.

Higher energy, food and consumer goods prices are fanning inflation without necessarily boosting productivity. Now, the spectre of recession is haunting many of the world’s economies, as central banks walk a tightrope between cooling rampant inflation without dampening demand and depressing wages.  

Our investment teams of course need to navigate their way through these obstacles carefully – managing downside risks while positioning for upside gains. First Sentier Investors’ asset class experts share their ideas about what’s ahead in 2023. 

Jump to:

Global credit

Asian fixed income

Global listed infrastructure

Global credit

Asian fixed income

Recession looms large 

There’s a growing consensus many economies are likely to enter recession in 2023.

“Inflation in the US has recently seen a reversal in direction, signalling the peak may have passed and further softening could be on its way. There are concerns substantial policy tightening in the face of spiralling inflation will strangle growth and push major economies into recession,” Craig Morabito, Senior Portfolio Manager, Global Credit, said.

China’s challenges easing 

Nigel Foo, Head of Asian Fixed Income, said the challenges facing China may ease in 2023, and concerns about the country’s property sector along with it.  

Foo pointed to the possibility the three themes driving Asian credit market performance in the past 12 months are likely to have a more subdued impact in 2023. The three themes he highlighted are the Federal Reserve hiking interest rates to curb inflation, negative sentiment towards China, its retreat from zero COVID policy, and global recession fears.   

“Government support aimed at boosting liquidity and reducing re-financing risks in the sector has strengthened in recent months. It now includes direct bond purchases and guarantees for specific developers. This is definitely a big positive for the sector,” he said. 

Interest rate rises: time to take a breath? 

While central banks aggressively raised rates in 2022, there is hope that they will slow down. 

Kej Somaia, Co-head of Multi-Asset Solutions, said: “We expect central banks to continue to implement quantitative tightening measures, including increasing interest rates in 2023 – albeit in smaller increments than in 2022 – as evidence of inflation growth remains but continues to plateau.”

“While tightening has dampened equity valuations, corporate balance sheets have so far remained solid,” he said. 

While tightening has dampened equity valuations, corporate balance sheets have so far remained solid

Kej Somaia

Co-Head of Multi-Asset Solutions

Pockets of opportunity in equities   

Given all the uncertainty, equity markets need to be navigated carefully, Somaia added.  

“Repricing in equity markets in recent months has led to valuation opportunities emerging. However, these opportunities need to be considered in the context of ongoing volatility and the potential for deteriorating economic conditions,” Somaia said.

“Global markets have seen selloffs and while valuations are more attractive than they were this time last year, we are cautious about 2023.” he said.

Infrastructure in the box seat

 “We expect public policy support for infrastructure investment to remain strong globally, especially where it relates to the replacement of ageing infrastructure assets,  buildout of renewables to help decarbonise electricity generation, and  globalisation of natural gas markets,” said Peter Meany, Head of Global Listed Infrastructure Securities.

“We also expect private sector funding of new infrastructure investment to remain strong in 2023 although rising interest rates will likely see M&A activity slow. We anticipate a robust pipeline of capital investment opportunities for the majority of global listed infrastructure companies for the year ahead.”

“Some sectors within infrastructure could be well positioned to benefit from structural growth drivers, with communications infrastructure being one of these,” Meany said.

“Consumers and businesses continue to move activities onto digital platforms which underpins demand for capacity on communications infrastructure such as cell towers and data centres. In 2023, we expect carriers and mobile network operators to continue the multi-year rollout of 5G mobile technology which will require tower leasing”, Meany highlighted. 

Credit’s time to shine 

“Credit fundamentals remain broadly supportive, particularly in the US and Europe. Meanwhile, interest coverage ratios – which measure how comfortably companies can service their debt obligations – remain favourable on the whole,” Morabito said.

Morabito added that many companies have already locked in lower borrowing costs, and credit agencies are reasonably optimistic. 

“Ample capital has been raised over the past three years through new bond issuance, as companies took advantage of historically low borrowing costs. Many firms have issued bonds with relatively long maturities, thereby reducing refinancing risk.  

“Encouragingly, we are still seeing more upgrades than downgrades from major credit rating agencies, although the rate of upgrades has been moderating recently.” 

Foo echoed this sentiment in his case for Asian credit: “At a yield of close to 6% compared to a historical average of 4-5%, Asian investment grade bonds are looking very attractive, especially for long term investors. The fundamentals of this asset class have also been resilient through previous downturns, and companies with healthy cash balances providing a compelling reason to increase exposure into this asset class for the year ahead.” 

Housing and data: A bright spots for REITs 

“We are positive on the residential-for-rent sector, which includes apartments, detached housing, pre-fab homes and student housing. The risk-adjusted returns currently offered by the sector are compelling as residential assets typically deliver stable cash flows through the cycle, said Stephen Hayes, Head of Global Property Securities.

“We are also positive on data centres as replacement values continue to rise, increasing barriers to entry which should support rental growth with tenant demand likely to show low economic sensitivity. The sector is well placed over the medium to long term as they are integral to supporting the growth of the digital economy.” 

After a strong run during the pandemic, the team is more cautious on the short-term outlook for logistical warehousing. 

“Risks of a recession in the short term could see tenant demand fall back from elevated levels. However, we still believe that any short term over-estimations of required supply are transitory, and will be outweighed in the longer term by strong structural tailwinds in the sector.” 

Source : Company data, First Sentier Investors, as of 30 November 2022

Important information

The information contained within this material is generic in nature and does not contain or constitute investment or investment product advice. The information has been obtained from sources that First Sentier Investors (“FSI”) believes to be reliable and accurate at the time of issue but no representation or warranty, expressed or implied, is made as to the fairness, accuracy, completeness or correctness of the information. To the extent permitted by law, neither FSI, nor any of its associates, nor any director, officer or employee accepts any liability whatsoever for any loss arising directly or indirectly from any use of this material.

This material has been prepared for general information purpose. It does not purport to be comprehensive or to render special advice. The views expressed herein are the views of the writer at the time of issue and not necessarily views of FSI. Such views may change over time. This is not an offer document, and does not constitute an investment recommendation. No person should rely on the content and/or act on the basis of any matter contained in this material without obtaining specific professional advice. The information in this material may not be reproduced in whole or in part or circulated without the prior consent of FSI. This material shall only be used and/or received in accordance with the applicable laws in the relevant jurisdiction.

Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. All securities mentioned herein may or may not form part of the holdings of First Sentier Investors’ portfolios at a certain point in time, and the holdings may change over time.

In Hong Kong, this material is issued by First Sentier Investors (Hong Kong) Limited and has not been reviewed by the Securities & Futures Commission in Hong Kong. In Singapore, this material is issued by First Sentier Investors (Singapore) whose company registration number is 196900420D. This advertisement or material has not been reviewed by the Monetary Authority of Singapore. First Sentier Investors is a business name of First Sentier Investors (Hong Kong) Limited. First Sentier Investors (registration number 53236800B) is a business division of First Sentier Investors (Singapore).

First Sentier Investors (Hong Kong) Limited and First Sentier Investors (Singapore) are part of the investment management business of First Sentier Investors, which is ultimately owned by Mitsubishi UFJ Financial Group, Inc. (“MUFG”), a global financial group. First Sentier Investors includes a number of entities in different jurisdictions.

MUFG and its subsidiaries are not responsible for any statement or information contained in this material. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment or entity referred to in this material or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk, including loss of income and capital invested.