Investing in 2023: Six asset types to target in an uncertain world

An uncertain year lies ahead for investors, but money will still be made by some, and these asset types may be areas to consider.

Investors had a tough time in 2022 as property, shares and other key assets slumped, but weakness creates opportunities for savvy buyers.

Despite fears of global recession and more price slumps in 2023, investment specialists see some pockets of potential growth.

The key, they say, is to hold a diverse range of investments across different countries, companies, sectors and asset classes, and remain focused on the long term.

These six investments may deliver better returns than others as the year unfolds.

1 TECHNOLOGY

Australian Shareholders’ Association director Lel Smits says the technology sector was hit hard in 2022 as sharp interest rate rises sent investors fleeing from high-growth stocks.

Between November 2021 and December 2022 both the ASX All Technology Index and the US Nasdaq Composite Index lost about one third of their value. Some of the world’s biggest tech names were hit hard including Amazon, Google’s owner Alphabet and Facebook’s owner Meta.

“The bargain hunters could be ready to move in and take advantage of lower valuations,” Smits says.

“As inflation appears to steady and rates near the end of the rate-hiking cycle, proven and well-funded technology companies with strong business models could offer upside,” she says.

2 SUSTAINABILITY

“As the world moves to embracing a more sustainable and net zero future, there will be greater demand for industries and companies that are facilitating a lower-carbon future,” Smits says.

“Environmental, social, and governance (ESG) investing seeks to screen investments based on non-financial factors and is becoming a dominant priority for businesses and investors.”

Lel Smits from the Australian Shareholders' Association says bargain hunting may be popular.

3 BONDS

Government bonds and other fixed interest investments – often a cornerstone of conservative portfolios – were hammered in 2022 as interest rates rose globally, delivering many retirees negative investment returns in portfolios that were supposed to remain stable.

But now that interest rates are near their peak, bonds are back.

Perks Private Wealth director Nick Connelly says bonds now look attractive “after the biggest sell-off in decades”.

“Yields of 4-5 per cent plus for investment-grade exposures are an appealing alternative to shares, particularly if we end up in a recession in 2023, as long as you remain invested in higher credit quality issuers,” he says.

“We would avoid sub-investment grade and ensure broad diversification.”

4 EMERGING MARKET SHARES

New research by investment platform Stockspot found Aussie investors sought US companies in 2022, with six times as much money flowing into US-focused exchange traded funds – $1.5bn – compared with any other market or region.

However, Stockspot CEO Chris Brycki says emerging market shares may be an option for 2023 as they tend to do well when inflation is high.

“Emerging market shares have had a poor past 11 years, underperforming US shares by a significant margin,” he says.

“Emerging markets directly benefit from higher commodity prices. Australian investors can gain exposure to this asset class via the emerging markets shares ETF on the ASX.”

5 SELECTED REAL ESTATE

Many investors swear by property, and while prices overall are tipped to fall in 2023 as interest rate rise impacts intensify, there are still some potential winners.

Buyer’s agent and author Lloyd Edge says while the overall property market is in a downturn, this does not mean all markets are impacted equally.

While Sydney, Melbourne and Brisbane are likely to see the downturn continue for 3-6 months, there are some good opportunities in Perth while Darwin has high rental yields, Edge says.

“Darwin properties could get a short-term boost from new infrastructure projects,” he says.

“We’re still seeing steady growth in regional areas, although it has slowed down compared to the pandemic property boom. Investors are driving this demand due to the lower median price points and high rental yields of regional properties.”

6 CASH IN THE BANK

Cash was unloved for several years before 2022, but the recent rush of interest rate rises has lifted many deposit account rates above 4 per cent.

While this is lower than inflation, cash can serve as a great defensive option when other asset prices are going backwards.

Holding extra cash also gives investors an opportunity to pounce on bargain investments if their values drop further.

Investor Kurt Donnelly is closely watching renewable energy, technology and cryptocurrency.

INVESTOR WITH EYE ON THE FUTURE

Investor Kurt Donnelly, 29, uses trading platform eToro and says that 2022 highlighted that diversification is essential.

“No matter your experience, the markets will always surprise you,” he says.

“Worrying about what has happened or stressing about what lies ahead will only cloud judgment.”

Donnelly says in 2023 he will be closely watching renewable energy investments, technology and cryptocurrency.

“Fossil fuels are currently seeing a surge due to the ongoing Ukraine crisis,” he says.

“However, that won’t stop renewable energy’s inevitable takeover as the leading energy supplier, and 2023 is the ground floor from an investment point of view.”

“The future is going digital. Because of that, the tech and crypto sectors are the fastest-growing sectors in the history of investment and have the highest growth potential.”

Originally published as Investing in 2023: Six asset types to target in an uncertain world