2023 review: top investment strategies of the year
- Growth back with a bang as it trounces value
- AI excitement sees the Magnificent Seven soar
- India takes the spoils as China flops
Joseph Hill, Senior Investment Analyst, Hargreaves Lansdown
Growth trounces value
“After a horrible 2022, when growth lagged value by 26% and left investors nursing some large drawdowns, growth has been back with a bang in 2023. As of the end of November 2023, the MSCI World Growth index was up 24.9%, compared to the MSCI World Value index return of just 1.3%. Despite interest rates continuing to rise in many developed economies in the first half of the year, investors are clearly of the view that the majority of rate rises have already happened.
Putting the debate around ‘how high for how long’ to one side, when rates do come down that is likely to benefit share prices, and particularly those companies with lots of growth potential. This performance profile serves as a reminder to investors of the benefits of diversification. And not just by geography, but by style. Those sitting back admiring a strong year for their growth focused portfolio or lamenting a token return from their value-biased investments might want to revisit the weighing scales.
The Magnificent Seven and AI drive the US market
The strong performance of the S&P 500 index this year has been driven by the stellar performance of seven giants. It’s Nvidia, Meta, Tesla, Amazon, Google, Apple and Microsoft who all make up this exclusive group.
Investors have grown excited about the potential and the reach of artificial intelligence, so stocks with exposure to this dominant theme have soared. The performance of these stocks has contributed to an increasing concentration of the US market in these companies after a more underwhelming year for the rest of the index.
The action on AI isn’t just on the other side of the Pond though. In November, the UK hosted a world first summit on artificial intelligence safety at Bletchley Park in Buckinghamshire, England. This brought together industry leaders and well-known figures including Elon Musk who took part in an interview with UK Prime Minister Rishi Sunak.
Resilient India prospers as the China re-opening trade flops
The strength of the Indian economy has taken centre stage for those investing in Asia and emerging markets. Small and mid-caps have done especially well, alongside companies leaning into the domestic economy like financial services and consumer-focused firms.
While pricier than its regional peers, India offers an array of advantages, including improved corporate governance standards, favourable demographics and growing foreign direct investment. India’s economy is also expected to surpass both Germany and Japan by 2028, making it the third largest globally.
On the other hand, the much-hyped post-Covid China re-opening story flopped badly. With re-shoring fuelling doubts about its ability to continue growing strongly, a struggling property sector and a disheartened consumer – it’s been a tough year.
With an almost 20% return differential this year between these two major Asian markets in Sterling terms as of the end of November, investors may be thinking about rebalancing their Asian exposure. Chinese valuations at 20-year lows is a good measure of where sentiment is today. This suggests that there could be opportunities for investors willing to look through the gloom to the long term.”
