5 investment ideas for 2023
If you’ve only got a minute:
- The new year is an opportune time to review investments and look at new market opportunities and investing ideas.
- On the income end of the Barbell Strategy, consider investing in high quality bonds, banks, and S-Reits for dividend plays.
- On the growth end, consider I.D.E.A. plays and tapping opportunities in a reopening China.
We often start each year feeling inspired with new objectives and hopes.
Along with well-intentioned resolutions, we hope to continue good practices and change those that we consider less desirable. After all, a new year represents a blank slate and with it, new possibilities.
As much as it is important to look forward, it also helps to look back to see where we have come from.
In the same vein, for those who have yet to invest but are toying the idea of starting, this might be a good time to start.
Meanwhile, for those who are already invested, the start of the year is usually an opportune time to review investments and consider new opportunities in the markets.
Let’s look at some investment ideas that will resonate well for retail investors in 2023. But first, let’s look back a 2022, the year that was.
2022: A recap
It’s hard to believe that we are already 3 years into the decade (It’s been quick, we know!) and markets have really ebbed and flowed during this time.
Since the Covid-19 outbreak in 2020, global financial markets have been through a rollercoaster ride. We saw sharp sell-offs, which were quickly followed by strong recoveries in many stock markets in late-2020 and well into 2021.
However, 2022 threw a spanner in the works on the possibility of a sustained recovery as financial markets were bogged down by several key issues.
Of these, persistent inflation and the resulting monetary policy moves by central banks globally to raise interest rates to tame inflation are hurting our wallet. Both inflation and interest rates are likely to stay elevated in 2023.
For now, there is uncertainty around whether the Russia-Ukraine crisis will be resolved soon and recessionary fears are still present.
That said, China finally relaxed Covid-19 measures at the end of 2022, which was welcomed by financial markets.
Investment ideas for 2023
Bearing in mind that both interest rates and inflation are likely to stay elevated, at least when compared to the past decade, investors can look into opportunities offered by income-generating investments to keep pace with inflation.
Moreover, especially in times like these, building a resilient investment portfolio is critical. DBS Chief Investment Office (CIO) recommends that investment portfolios should comprise securities of high-quality companies that demonstrate traits of being income generators, growth enhancers, and risk diversifiers.
These investment ideas work in line with the Barbell Strategy, an investment strategy advocated by DBS CIO since August 2019.
Simply put, a portfolio that follows the Barbell Strategy means investors holds Overweight exposures in Growth equities on one end, and in Income assets on the other.
On one end, take on secular growth equities that ride on long-term, irreversible growth trends. On the other end of the portfolio, take on income-generating assets such as government and corporate bonds, and dividend-yielding equities.
1. Fixed income
In the past decade, interest rates have been largely low. During this period, some investors lamented the lack of opportunities to invest in fixed income or bonds, which resulted in them seeking more opportunities in other asset classes.
But much of this changed in 2022, when inflation started rising quickly. Higher inflation not only drives up costs of living but affects idle cash in low interest bank accounts losing value over time.
To combat inflation, the US Federal Reserve undertook aggressive interest rate hikes to tame inflation. Higher bond yields as a result of higher interest rates and an inflationary environment have pushed more to safeguard the value of their money. Naturally, this has seen more investors allocate their funds into bonds.
With global bond yields above 5% at the time of writing, there is never a better time for investors to buy bonds.
Even more risk averse investors are realising they need to make their money work harder and are on the lookout for low-risk investment vehicles to park their savings.
In Singapore’s context, examples include Singapore Savings Bonds and T-bills. Their popularity has grown tremendously due to the rising interest rate environment.
There are other benefits to improving your allocation to fixed income/bond instruments. They provide investors with downside protection given its defensive qualities and this is particularly important with rising recession risks lurking on the horizon.
Moreover, from a historical perspective, bonds tend to perform better than stocks in a high inflation/low growth environment, which is what we are likely to see in 2023.
Financial institutions are often viewed as beneficiaries of a higher interest rate environment. Much of this boils down to the banking sector being more sensitive to changes in interest rates.
One of the measures of a bank’s profitability is net interest margin. It represents the difference between interest income generated by banks from borrowers and the amount of interest paid out to its lenders. This figure tends to grow as interest rates increase.
While it is possible that margins can fall if interest rates get too high, it is mindful to note that in the past decade, interest rates were abnormally low and what we are seeing now is closer to historical averages. Moreover, the market view is one where a severe recession with high unemployment rates and relatedly high credit costs is not on the cards.
The banking sector posted a strong performance in 2022, and is set build on that in 2023. According to DBS CIO, the consensus among investment analysts covering US Banks is that the sector is expected to register robust growth in 2023 with earnings forecasts rising by an average of 19%.
However, in Asia, bank earnings could still be underestimated and surprise on the upside for several reasons, such as fee income benefitting from a recovering economy.
Banks in Asia also tend to pay regular dividends to shareholders. In China and Singapore, banks have often been able to consistently pay dividends to shareholders and are viewed as good additions to dividend-focused portfolios.
In a low interest rate environment, Singapore Real Estate Investment Trusts (S-Reits) often gain attention from investors who are on the hunt for yield as they are required to 90% pay of their profits as distributions to its investors.
However, the unit prices of S-Reits fell in the second half of 2022 with September being a particularly bruising month where S-Reits were down by 7.3%, underperforming the Straits Times Index.
This was mainly attributed to persistent inflation in the US and with the US Federal Reserve guiding that it has more work to do to tame inflation (i.e raising interest rates).
Rising interest rates tend to have a two-fold impact on S-Reits. The first is that they are less competitive than bonds and bank deposits. Secondly, they also face higher loan costs for their debt obligations.
Investor interest in S-Reits may have waned but value has emerged with some trading at valuations not seen in close to a decade.
DBS Group Research is of the view that the recent price weakness could be an opportunity to start dipping into the sector with some with suburban retail S-Reits, selected office S-Reits and industrial S-Reits trading at relatively attractive levels.
Moreover, with Singapore’s reopening, Hospitality S-Reits are poised to deliver outstanding results, which might surprise on the upside.
That said, a caveat is that investors should look at selected S-Reits that have a more stable earnings profile.
Typically, S-Reits have a dividend yield of 4-7% per annum.
S-Reits form part of the Income half of the Barbell portfolio, along with high quality bonds bonds and dividend-yielding stocks like Singapore Banks and China Banks.
4. I.D.E.A. generation
Technology is an omnipresent part of our lives and it will be playing a bigger role in the future as the world becomes a digital economy.
DBS CIO is of the view that in the digital economy, companies that exhibit certain traits and abilities are likely to be big winners.
It coined the acronym I.D.E.A. to encapsulate the types of companies that will be winners of this new digital world. Looking ahead is critical to success.
The acronym represents:
With regard to secular growth equities, I.D.E.A. companies (Innovators, Disruptors, Enablers, Adapters) offer valuation buffers. Naturally, many of these companies are technology firms.
Despite investors’ concerns of a slowdown in growth, the Technology sector has displayed resilience.
Moreover, companies in the technology sector tend to hold on to greater amounts of profits as retained earnings to reinvest in growth opportunities, rather than paying them out in the form of dividends.
Past performance shows that during periods of rising interest rates, technology sector experienced average gains that outperformed the S&P 500 Index.
At present, investors can continue to maintain exposure to US Technology to ride the tailwinds of toppish bond yields.
5. China’s (much-awaited) reopening
For much of 2022, strict Covid-19 measures in China/Hong Kong cast a shadow over both economic and stock market performance.
That said, signs of a potential slowing in US inflation and recent adjustment to China’s Covid-Zero policy in November 2022 are giving a boost to market sentiment.
With shackles now off, there is compelling upside potential for China equities to re-rate from current levels, driven by the ongoing introduction of government measures to alleviate key concerns regarding Covid-Zero policies, real estate sector problems, and economic goals.
DBS CIO continues to stay constructive on China equities and investment opportunities are emerging as China reopens. In particular, DBS CIO remains constructive on domestic oriented sectors which are at the forefront of the reopening ripple.
These include A-shares, New Economy and e-Commerce platforms, China consumer brands, beneficiaries of government fixed asset expenditures, and high dividend-yielding financials.
With China potentially re-opening, it presents an opportunity to relook at China-focused S-Reits.
While these are some investment ideas for you to ponder over, do remember that it is vital for all investors to understand themselves and their needs.
This means taking note of your investment objectives, investment capital, time horizon and risk tolerance levels, among other things.
These would help to understand which of these ideas are more suited to you and shape investment decisions.
One last thing. We need to make sure that we balance our drive to make our money work harder for us and our professional lives, with time with our family.
While we often feel energised and recharged at the start of the year, it is also a good time to remind ourselves the importance of pacing ourselves and avoiding burnout. After all, health is also wealth.
Ready to start?
Speak to the Wealth Planning Manager today for a financial health check and how you can better plan your finances.
Need help selecting an investment? Try ‘Make Your Money Work Harder’ on DBS NAV Planner to receive specific investment picks based on your objectives, risk profile and preferences.
DBS CIO, "CIO Insights 4Q22: Fed in Focus" (27 Sep 2022). Retrieved 13 Jan 2023.
DBS CIO, "CIO Insights 1Q23: The Return of 60/40" (16 Dec 2022). Retrieved 13 Jan 2023.
DBS Group Research, "Time to increase exposure - Singapore REITs" (17 Jan 2023). Retrieved 18 Jan 2023.
Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.
All investments come with risks and you can lose money on your investment. Invest only if you understand and can monitor your investment. Diversify your investments and avoid investing a large portion of your money in a single product issuer.
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