2022 was a year of turmoil for the US equity markets. The S&P 500 recorded losses of over 20 per cent, and tech stocks performed even worse. Apple and Microsoft fell by almost 30 per cent, and Alphabet – the parent company of Google – fell by almost 40 per cent.
Concerns such as high inflation and interest rates have been cited as reasons behind this downturn. In addition, the two years prior were particularly kind to tech companies. Valuations had reached unprecedented levels and in hindsight, a price correction was well overdue.
Going into 2023, economic uncertainty continues to play a significant role in determining investor sentiment. According to Leonard Eng, Senior Manager at TD Ameritrade Singapore, an online brokerage and trading platform, there are three key factors contributing to this uncertainty.
What are investors looking out for in 2023?
First, there’s the relaxation of COVID-19 policies in China and the reopening of the country’s borders, which will certainly have an impact on global inflation. What remains to be seen is whether the impact will be positive or negative.
On one hand, the increased demand for commodities such as natural gas could drive prices up even further. This could force countries such as the US to take stronger measures in raising interest rates and controlling inflation.
[China’s] national statistics office recently reported that the country’s population shrank last year for the first time in six decades. This significant demographic shift could have ramifications on its labour pools and consumer demand, and in turn, have an impact on the global economic demand for goods and services, such as crude oil and minerals.
– Leonard Eng, Senior Manager at TD Ameritrade Singapore
That being said, the border reopening is also set to boost growth for neighbouring Southeast Asia economies, particularly those heavily reliant on tourism.
The next factor – closely tied to the previous one – is the prevailing interest rate environment and how much longer it might last.
“Major central banks’ interest rate announcements will also play a key role in shifting investor sentiments. If inflation eases to manageable levels, central banks like the Federal Reserve will likely begin lowering interest rates to stimulate the economy,” says Eng.
Finally, there’s the Ukraine-Russia conflict to look out for. “It continues to pose geopolitical, commodity, and supply chain headwinds to the global economy,” Eng explains.
What does the investor sentiment look like in Singapore?
As per data by TD Ameritrade, Singaporean investors are approaching the new year with more optimism than those in other parts of the world. The platform’s Investor Movement Index (IMX) revealed a positive change in sentiment among local clients.
In December, we saw Singapore clients on our platform slightly increasing their exposure to the markets, perhaps showing a glimmer of optimism as we head into 2023.
– Leonard Eng, Senior Manager at TD Ameritrade Singapore
Diverging from the rest of TD Ameritrade’s client population, Singaporeans were net buyers of equities in the final month of 2022. Apple and Walt Disney were popular stocks as the client base opted for securities with a relatively low beta — a figure which indicates the volatility of a stock compared to the broader market.
“Many of them took the opportunity to re-allocate their holdings into securities that are aligned with megatrends, such as workplace digitalisation and the sustainability transition,” Eng adds.
While traders still have a predominantly bearish outlook towards the US stock market, they are picking up on broader trends which are set to define the post-pandemic world.
Investing trends to watch out for
Sustainability is a key trend which has picked up steam over the past year.
As the need for climate action becomes more and more pressing, businesses and consumers alike have started paying closer attention to this theme. 2022’s surge in oil prices added to this sentiment as well, illustrating a need for alternative energy sources.
“We saw both TD Ameritrade Singapore clients and the overall TD Ameritrade client population picking up on this – they were net buyers of electric vehicle makers like Tesla and Lucid Group in December 2022,” says Eng.
Workplace digitalisation is another trend – spurred on by the pandemic – that’s still going strong. Hybrid work has proven its appeal and is likely to be the norm for many companies moving forward.
“This shift in the future of work has translated to investment opportunities for TD Ameritrade Singapore clients – for instance, they were net buyers of Salesforce despite the firm’s sharp selloff in early December.”
Finally, artificial intelligence (AI) technology has been growing in popularity in recent years. With the unprecedented success of ChatGPT, the space has picked up even more momentum heading into the new year.
Tech companies including Google and Microsoft are actively pursuing innovations in the space, and it’d appear there’s a lot of room for growth. “Investors looking to capitalise on this trend have been investing in chip manufacturers for AI applications, like NVIDIA,” says Eng.
Featured Image Credit: TD Ameritrade
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