2023 special: an unexpectedly great year for investments

Chief Investment Officer's team

02 January 2024

AT A GLANCE

All asset classes delivered very positive returns in 2023, against most predictions
A large majority of 2023 portfolio returns was generated in the last two months of the year
We will issue our full 2024 Global Investment Outlook later in January, as always.

2023 has been a spectacular year for investments in many ways. First, all asset classes did very well: from +3% for hedge funds, +4% for government bonds, +5% for cash to +13% for gold, +14% for high yield and almost +24% for stocks from developed markets.

In addition, volatility was material, with several full swings in terms of scenario, especially on inflation and central banks, that shaped risk appetite and aversion. Finally, it was a difficult year for forecasters. Both growth and market returns were much better than what pretty much everybody had predicted a year ago. This was a driver for the year-end rally, which wasn’t about the economy or a sudden burst of euphoria. It was the painful capitulation of overly pessimistic investors, caught short by unexpected good news, spiralling into the fear of missing out and panic buying.

We had started 2023 with humility, calling it the year of unpredictability. We prioritized core portfolio construction, with a reshuffled strategic asset allocation, over low confidence tactical bets. It worked. Our profiles returned respectively +9%, +13% and +15% (rounded), outperforming our global peers.

The questions of 2023 are still here as we start 2024, but this time, they will be answered: from growth, inflation and central banks to major political and geopolitical developments, markets will be volatile, in a constant adjustment between implicit expectations and reality.

We will release our 2024 Global Outlook later this month – we always wait for the actual end of year, to report accurately, including on our own performance. It’s not over until it’s over, which was particularly the case in 2023. We wish you a peaceful, healthy, joyful and prosperous new year.

2023 special: an unexpectedly great year for investments

Cross-asset Update

In this “2023 Special” we will have a quick look-back at what was clearly a remarkable year for global markets. It may be useful to remember that it followed a genuinely devastating 2022. The return of inflation, as a consequence of the post-Covid rebound, turbocharged by an unprecedented level of global monetary and fiscal support, had created a “correlation shock” on markets where every single asset class was negatively hit, with the only exception of cash.

2023 started on a positive note, as a kind of normalization after the terrible 2022. This happened despite very gloomy predictions from many experts, including a few Wall Street superstars who expected a recession, falling stock markets and a range of financial troubles. At the end of a relatively positive Q1, financial troubles indeed started to hit, with balance-sheet tensions In US regional banks, turbulences in the UK pension system, and finally, a hurricane in Zurich which led to the emergency take-over of Credit Suisse by UBS. Volatility spiked, markets fell, but this was paradoxically the beginning of another positive episode: central banks provided clear and effective support to the financial system, including massive liquidity provision, which gave comfort to market participants. Appetite for risk came back.

The second quarter and the first part of the summer were buoyant, in what we had called a “Goldilocks Interlude”: global growth was resilient, especially impressive in the US, while inflation did not seem to re-accelerate – the hikes from the Fed were not a surprise anymore, and the idea that the end was near supported markets, which, helped by a new tech paradigm around artificial intelligence, printed a year high in late July.

The following three months were much more difficult: a downgrade in the US sovereign credit rating preceded a not-so-friendly tone in Jackson Hole central bank symposium. Then, the September Fed meeting was a trauma: the institution drastically changed their projections in a hawkish way, crushing bond markets and risk appetite, especially as geopolitical tensions in the Middle East erupted in early October.

At this point in time, the YTD returns of our three profiles fell to low single digit (positive). But then, a marginally better than expected US CPI report triggered a powerful “rally of everything”, as market participants were certainly not ready for good news. This only accelerated when the Fed adopted a much more friendly tone, in various speeches and finally in the press conference of their December meeting. The year ended with all asset classes in the green, and our three profiles delivered very positive returns of 9.6%, 12.8% and 15.3%, exceeding both our own expectations and most of our competitors’ returns. This happened despite a constant, although modest, overweight of cash and safe bonds throughout 2023, which was not overly detrimental as we remained close to neutrality on equity, with a switch from emerging to developed markets in the second part of the year.

2023 special: an unexpectedly great year for investments

Fixed Income Update

Last year was supposed to be the year of Fixed Income after the horrible 2022. In a sense, absolute return-wise, it wasn’t bad, with US Treasuries returning +4.1% while High Yield bagged the top spot with a +14% return. But compared to other asset classes, it wasn’t anything out of the ordinary. The CIO Office theme for the year was unpredictability, and the year justified the theme. The Treasury volatility index MOVE was continuously above 100 except for very short periods. The US 10-year treasury yield started the year at 3.9% and dropped to 3.3% before jumping to 5% in October, ending the year at around the same level where it had begun.

The US Treasury index was down -5.2% by the end of the year, and the return came only with the rally in treasuries in the last two months. There were three primary rationales behind the rally. Firstly, the US Treasury announced a lower-than-anticipated auction size on 31st October, triggering the upside. Secondly, momentum traders were caught on the wrong foot at the start of November and started unwinding positions, leading to further gains in the treasuries. Lastly, the weakening macro data, including lower inflation numbers and softening NFP figures combined with dovish FED speak, led to the soft landing scenario gaining traction as investors started to take into account the Fed pivot in 2024 after the 525 bps of rate hike cycle that ended in July 2023. From pricing in 2 rate cuts at the end of 31st October to pricing in 6 rate cuts, with the first cut starting in March 2024, the narrative has completely turned on its head. These expectations look a little stretched now.

Treasury volatility was not limited to the US alone. The placid corners of JGBs were comparatively more volatile, as there were talks of BoJ finally doing away with the easy monetary policy. Governor Ueda, however, has been very cautious, walking a fine line between inflation and growth, and he can't be indeed blamed. BoJ had started to move the trading range of the 10-year JGBs up since early 2023, and investors expect sometime in 2024, the central bank will remove yield curve control as well as do away with the negative interest rate regime.

Coming to credit both IG and EM credit were down by 1.5% till October. At the end of October, IG yield was in the top 1% over the last decade and presented ample opportunity for investors to lock in yields. The rally in the Treasury and spread compression drove returns in the credit indices. High yield was the best performer as spreads tightened by more than 110 bps. IG and EM Debt spread compressed by 30 and 45 bps roughly. Overall, credit as an asset class looks rich. Current spreads are below 20-year medians in all the segments.

It was a robust year for GCC primary issuance as the volume at $63.6 Bn in 2023 was almost double that of 2022. The majority of the issuance was from financial institutions, as HY sovereigns from the region mostly stayed out of the market. The holding period return of the bonds issued last year from the region generated an average return of around 4.5% from the issue date. As China issuance gained a backseat, GCC exposure in the EM index increased to around 21% from 16.7% in 2022, cementing its position as the second largest constituent post-Asia.

2023 special: an unexpectedly great year for investments

Equity Update

The 2023 special: a volatile year ended with global equities up 23%, with big tech leading returns with a focus from investors on the potential use of generative AI and data in Industry. After 3 months of negative returns for global equities, November and December returns were respectively 9% and 5%, with a record nine weeks of positivity. Though many laggards finally performed such as real estate and regional banks, leadership stayed with tech, the US, Japan, India and the Dubai equity indices. The magnificent 7 tech stocks were up 112% in 2023 and the global tech sector up over 50%, but it was not that narrow a rally, as all global regions barring China ended the year up, as did all global sectors. In local currency terms, Japan was the best performing region in 2023, with the Nikkei +31%, and in USD the Dubai Index stood out at +28%. Many indices made new highs, India’s Sensex, many tech sub sectors such the SOXX semiconductor Index, and the S&P 500 is almost back to its previous high.

What worked for us in 2023 is the almost year long US overweight within DM and an on and off Japan overweight. What worked in EM, is the India tactical and strategic overweight, the UAE overweight, till October when we went neutral when the Israel Hamas conflict started. We have stuck to a neutral positioning for China and were not tempted by the low valuations. Thematically we had advocated investing in tech, healthcare with a focus on AI (including at the beginning of this year in platforms, networks and applications). The AI focus worked but broader healthcare, except obesity drug manufacturers took a backseat.

As expected, the DM Central bank pivot worked in favor of developed market performance +24% in 2023, with EM posting lower returns, +10%. Globally inflation is lower and while DM rate cuts are still some time away, with no further hikes expected from the Fed, ECB and BOE; sovereign yields ticking down have been positive for sentiment. However, a conundrum with the US 10 year Treasury yield still at a high level, though lower by 20% from its peak of 5%; all about growth in 2023.

Equity indices in most major regions up over 15% in 2023, and within DM equities the US leading but Europe and Japan also posting strong returns. The S&P 500 ended 2023 +26% and the Nasdaq +45%. With SME’s/small caps facing higher interest costs, the Russell 2000, while rallying, is still lagging large cap US indices. In EM, most regions posted strong returns and India +20% for the MSCI India (USD) and the UAE saw a strong performance from Dubai but not the Abu Dhabi Index which has already more than doubled in the past three years. China equities ended down for 2023, with insufficient stimulus, real estate woes and consumer activity not growing.

Our next weekly will give our positioning for 2024, as we look to DM Central banks cutting rates, already lower sovereign yields and a weaker USD, however relatively high DM and India valuations. We would watch earnings and corporate guidance for direction.

2023 special: an unexpectedly great year for investments

Written by:

Maurice Gravier Chief Investment Officer , MauriceG@EmiratesNBD.com
Anita Gupta Head of Equity Strategy , Anitag@EmiratesNBD.com
Satyajit Singh Fixed Income Analyst , SatyajitSI@EmiratesNBD.com
Giorgio Borelli Head of Asset Allocation , GiorgioB@EmiratesNBD.com

Disclaimer

This document is prepared by Emirates NBD Bank (P.J.S.C) (“the Bank” or “Emirates NBD”), a public joint stock company incorporated in Dubai, United Arab Emirates (UAE) and licensed to provide various financial services including promotion, financial consultation, securities portfolio management, managing investments of investment funds, etc. Emirates NBD is regulated supervised and controlled by the Central Bank of the UAE (“Central Bank”) and the Securities and Commodities Authority of the UAE (“SCA”), having its head office at Baniyas Road, Deira, PO Box 777, Dubai, United Arab Emirates. This document may be distributed and/or made available by the Bank and its affiliates and subsidiaries, including Emirates NBD Capital KSA CJSC (“ENBD Capital”) (through its website, its branches or through any other modes, whether electronically or otherwise).

Emirates NBD and its affiliates, subsidiaries and group entities, including its shareholders, directors, officers, employees and agents are collectively referred to Emirates NBD Group.

This publication is prepared without regard to the individual financial circumstances and objectives of persons who receive it. Data/information provided in this publication are intended solely for illustrative purposes for the general information or its recipients, irrespective of their customer classification as an Ordinary Investor or Professional Investor under the SCA Regulations.

Any person (hereinafter referred to as “you”, “your”) who has received this document or have access to this document shall acknowledge and agree to the following terms.

Reliance

This publication may include data/information taken from stock exchanges or other third-party sources from around the world, which Emirates NBD reasonably believes to be reliable, fair and not misleading, but which have not been independently verified. The provision of certain data/information in this publication may be subject to the terms and conditions of other agreements to which Emirates NBD is a party. Opinions, estimates and expressions of judgment are those of the writer and are subject to change without notice. Emirates NBD or any member of Emirates NBD Group makes no representation or warranty and accepts no responsibility or liability for the sequence, accuracy, completeness or timeliness of the information or opinions contained in this publication. Nothing contained in this publication shall be construed as an assurance by Emirates NBD that you may rely upon or act on any information or data provided herein, without further independent verification of the same by you.

The contents of this document are prepared as of a particular date and time and will not reflect subsequent changes in the market or changes in any other factors, including those relevant to the determination of whether a particular investment activity is advisable. Emirates NBD does not undertake any obligation to issue any further publications or update the contents of this document. Emirates NBD may also, at its sole discretion, update or change the contents herein without notice. Emirates NBD or any member of Emirates NBD Group does not accept any responsibility whatsoever for any loss or damage caused by any act or omission by you as a result of the information contained in this publication (including by negligence).

References to any financial instrument or investment product in this document are not intended to imply that an actual trading market exists for such instrument or product. Certain investment products mentioned in this document may not be eligible for sale in some jurisdictions, and they may not be suitable for all types of investors. The information and opinions contained in this publication is provided for informational purposes only and have not been prepared with any regard to the objectives, financial situation and particular needs of any specific person, wherever situated. If you wish to rely on or use the information contained in this publication, you should carefully consider whether any investment views and investment products mentioned herein are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. You should also independently verify and check the accuracy, completeness, reliability and suitability of the information and should obtain independent and specific advice from appropriate professional advisers or experts.

Confidentiality

This publication may be provided to you upon request (and not for distribution to the general public), on a confidential basis for informational purposes only, and is not intended for trading purposes or to be passed on or disclosed to any other person and/or to any jurisdiction that would render the distribution illegal.

Solicitation

None of the content in this publication constitutes a solicitation, offer, recommendation or opinion by Emirates NBD to buy, sell or trade in any security or to avail of any service in any jurisdiction. This document is not intended to serve as authoritative legal, tax, accounting, or investment advice regarding any security or investment, including the profitability or suitability thereof and further does not provide any fiduciary or financial advice. This document should also not be used in substitution for the exercise of the prospective investor’s judgment.

Third Party

This publication is not intended for use by, or distribution to, any person or entity in any jurisdiction or country where such use or distribution would be contrary to law or regulation. It is the responsibility of any person in possession of this publication to investigate and observe all applicable laws and regulations of the relevant jurisdiction. This publication may not be conveyed to or used by a third party without the express consent of Emirates NBD or its affiliates, subsidiaries or group entities distributing this document. You should not use the data in this publication in any way to improve the quality of any data sold or contributed by you to any third party.

Liability

Notwithstanding anything to the contrary set forth herein, Emirates NBD, its suppliers, agents, directors, officers, employees, representatives, successors, assigns, affiliates or subsidiaries shall not, directly or indirectly, be liable, in any way, to you or any other person for any: (a) inaccuracies or errors in or omissions from this publication including, but not limited to, quotes and financial data; or (b) loss or damage arising from the use of this publication, including, but not limited to any investment decision occasioned thereby. Under no circumstances, including but not limited to negligence, shall Emirates NBD, its suppliers, agents, directors, officers, employees, representatives, successors, assigns, affiliates or subsidiaries be liable to you for direct, indirect, incidental, consequential, special, punitive, or exemplary damages even if Emirates NBD has been advised specifically of the possibility of such damages, arising from the use of this publication, including but not limited to, loss of revenue, opportunity, or anticipated profits or lost business.

This publication does not provide individually tailored investment advice and is prepared without regard to the individual financial circumstances and objectives of person who receive it. The appropriateness of an investment activity or strategy will depend on the person’s individual circumstances and objectives and these activities may not be suitable for all persons. In addition, before entering into any transaction, prospective investors should: (i) ensure that they fully understand the potential risks and rewards of that transaction; (ii) determine independently whether that transaction is appropriate given an investor’s investment objectives, experience, financial and operational resources, and other relevant circumstances; (iii) understand that any rates of tax and zakat or any relief in relation thereto, as may be referred to in this publication may be subject to change over time; (iv) consult their advisers on the legal, regulatory, tax, business, investment, financial and accounting implications of the investment; (v) understand the nature of the investment and the related contract (and contractual relationship) including, without limitation, the nature and extent of their exposure to risk; and (vi) understand any regulatory requirements and restrictions applicable to the prospective investor.

Where this publication provides any information about Shariah compliant products, the Bank will not have engaged a Shariah board (or similar body) to determine independently whether or not such products are compliant with Shariah principles. The Bank accepts no liability with respect to the fairness, correctness, accuracy, reasonableness or completeness of any such determination or guidance by any Shariah board that has certified or otherwise approved such products as Shariah compliant. Nothing contained in this publication shall be construed as a recommendation by the Bank to invest in such product. In deciding whether to invest in Shariah compliant products, you should satisfy yourself that investing in such products will not contravene Shariah principles. You should consult your own Shariah advisors as to whether investing in such products is compliant or not with Shariah principles.

Forward Looking

Past performance is not necessarily a guide to future performance and should not be seen as an indication of future performance of any investment activity. The information contained in this publication does not purport to contain all matters relevant to any particular investment or financial instrument and all statements as to future matters are not guaranteed to be accurate. Certain matters in this publication about the future performance of Emirates NBD or members of its group (the Group), including without limitation, future revenues, earnings, strategies, prospects and all other statements that are not purely historical, constitute “forward-looking statements”. Such forward-looking statements are based on current expectations or beliefs, as well as assumptions about future events, made from information currently available. Forward-looking statements often use words such as “anticipate”, “target”, “expect”, “estimate”, “intend”, “plan”, “goal”, “seek”, “believe”, “will”, “may”, “should”, “would”, “could” or other words of similar meaning. Reliance should not be placed on any such statements in making an investment decision, as forward-looking statements, by their nature, are subject to known and unknown risks and uncertainties that could cause actual results, as well as the Group’s plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. Estimates of future performance are based on assumptions that may not be realized.

Risk

Data included in this publication may rely on models that do not reflect or take into account all potentially significant factors such as market risk, liquidity risk, and credit risk. Emirates NBD may use different models, make valuation adjustments, or use different methodologies when determining prices at which Emirates NBD is willing to trade financial instruments and/or when valuing its own inventory positions for its books and records. The use of this publication is at the sole risk of the investor and this publication, and anything contained herein, is provided "as is" and "as available." Emirates NBD makes no warranty of any kind, express or implied, as to this publication, including, but not limited to, merchantability, non-infringement, title, or fitness for a particular purpose or use.

Investment in financial instruments involves risks and returns may vary. The value of investment products mentioned in this document may neither be capital protected nor guaranteed and the value of the investment product and the income derived therefrom can fall as well as rise and an investor may lose the principal amount invested. Investment products are subject to several risks factors, including without limitation, market risk, high volatility, credit and default risk, illiquidity, currency risk and interest rate risk. It should be noted that the value, price or income of securities denominated in a foreign currency may be adversely affected by changes in the currency rates. It may be difficult for the investor to sell or realise the security and to obtain reliable information about its value or the extent of the risks to which it is exposed. Furthermore, the investor will not have the right to cancel a subscription for securities once such subscription has been made. Prospective investors are hereby informed that the applicable regulations in certain jurisdictions may place certain restrictions on secondary market activities with respect to securities.

Before making an investment, investors should consult their advisers on the legal, regulatory, tax, business, investment, financial and accounting implications of the investment. In receiving this publication, the investor acknowledges it is fully aware that there are risks associated with investment activities. Moreover, the responsibility to obtain and carefully read and understand the content of documents relating to any investment activity described in this publication and to seek separate, independent financial advice if required to assess whether a particular investment activity described herein is suitable, lies exclusively with the investor.

Intellectual property

This publication has been developed, compiled, prepared, revised, selected, and arranged by Emirates NBD and others (including certain other information sources) through the application of methods and standards of judgment developed and applied through the expenditure of substantial time, effort, and money and constitutes valuable intellectual property of Emirates NBD and such others. All present and future rights in and to trade secrets, patents, copyrights, trademarks, service marks, know-how, and other proprietary rights of any type under the laws of any governmental authority, domestic or foreign, shall, as between the investor and Emirates NBD, at all times be and remain the sole and exclusive property of Emirates NBD and/or other lawful parties.

Except as specifically permitted in writing, you should not copy or make any use of the content of this publication or any portion thereof or publish, circulate, reproduce, distribute or offer this publication for sale in whole or in part to any other person over any medium including but not limited to over-the-air television or radio broadcast, a computer network or hyperlink framing on the internet or construct a database of any kind. Except as specifically permitted in writing, you shall not use the intellectual property rights connected with this publication, or the names of any individual participant in, or contributor to, the content of this publication, or any variations or derivatives thereof, for any purpose. This publication is intended solely for non-commercial use and benefit, and not for resale or other transfer or disposition to, or use by or for the benefit of, any other person or entity. By accepting this publication, you agree not to use, transfer, distribute, copy, reproduce, publish, display, modify, create, or dispose of any information contained in this publication in any manner that could compete with the business interests of Emirates NBD. Furthermore, you should not use any of the trademarks, trade names, service marks, copyrights, or logos of Emirates NBD or its subsidiaries in any manner which creates the impression that such items belong to or are associated with you, except as otherwise provided with Emirates NBD’s prior written consent. You shall have no ownership rights in and to any of such items.

IMPORTANT INFORMATION ABOUT UNITED KINGDOM

This publication was prepared by Emirates NBD Bank (P.J.S.C) in the United Arab Emirates. It has been issued and approved for distribution to clients by the London branch of Emirates NBD Bank (P.J.S.C) which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority in the UK. Some investments and services are not available to clients of the London Branch. Any services provided by Emirates NBD Bank (P.J.S.C) outside the UK will not be regulated by the FCA and you will not receive all the protections afforded to retail customers under the FCA regime, such as the Financial Ombudsman Service and the Financial Services Compensation Scheme. Changes in foreign exchange rates may affect any of the returns or income set out within this publication.

IMPORTANT INFORMATION ABOUT SINGAPORE

This publication was prepared by Emirates NBD Bank (P.J.S.C) in the United Arab Emirates. It has been issued and approved for distribution to clients by the Singapore branch of Emirates NBD Bank (P.J.S.C) which is licensed by the Monetary Authority of Singapore (MAS) and subject to applicable laws (including the Financial Advisers Act (FAA) and the Securities and Futures Act (SFA). Any services provided by Emirates NBD Bank (P.J.S.C) outside Singapore will not be regulated by the MAS or subject to the provisions of the FAA and/or SFA, and you will not receive all the protections afforded to retail customers under the FAA and/or SFA. Changes in foreign exchange rates may affect any of the returns or income set out within this publication. Please contact your Relationship Manager for further details or for clarification of the contents, where appropriate. For contact information, please visit www.emiratesnbd.com.

IMPORTANT INFORMATION ABOUT EMIRATES NBD CAPITAL KSA CJSC

Emirates NBD Capital KSA CJSC (“ENBD Capital”), whose registered office is at P.O. Box 341777, Riyadh 11333, Kingdom of Saudi Arabia, is a Saudi closed joint stock company licensed by the Saudi Arabian Capital Market Authority (“CMA”) under License number 37-07086 dated 29/08/2007G (corresponding to 16/08/1428H) to deliver a full range of quality investment products and related support services to individuals and institutions in the Kingdom of Saudi Arabia. ENBD Capital is subject to Capital Market Law, and Implementing Regulations in the Kingdom of Saudi Arabia

ENBD Capital’s contact details are T +966 (11) 299 3900 and F +966 (11) 299 3955.

This document may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the Investment Funds Regulations issued by the Capital Market Authority.

The Capital Market Authority does not make any representation as to the accuracy or completeness of this document, and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this document. Prospective subscribers of the securities offered hereby should conduct their own due diligence on the accuracy of the information relating to the securities offered. If you do not understand the contents of this document, you should consult an authorised financial adviser.

more app

Personal | Home | Auto Loans