Quick look back at 2022
The markets in 2022 were clearly characterized by more pain than gain. The Indian benchmarks eked 3% gains in a volatile year and was one of the few markets which closed the year in green.
In general, returns from bonds and equities don't move together. 2022 was an exception as steep monetary tightening depressed both Equity and Bond valuations.
The combination of the Fed raising interest rates 7 times,Russia's invasion of Ukraine and China's zero covid strategy proved to be too much for the global markets to bear.
The S&P 500 closed down 19% in 2022 making it the worst year since 2008 and the 4th worst since the index's launch!! The tech heavy Nasdaq did much worse by losing 33%. The story was similar in China which also had its worst year since 2008, closing 23% lower.
But one market got hit hard, really hard. Crypto enthusiasts will not forget 2022 for a long time. The price of Bitcoin fell by 65% during the year and the cryptocurrency Luna suffered a total collapse in value.
What does it mean for 2023?
Economic Uncertainty in the short term
The 3 biggest contributors to global GDP - the US, China and the EU are expected to slow from their long term trends; will recession hit the US is anyone's guess.
This will have an impact on India's exports and FPIs might hold back investing. Layoffs in the tech space may depress spending and thereby impact consumer spending!
Indian GDP is expected to grow at 7% in 2023, the highest of any large economy.
However, we won't be insulated from the global trends.
Our stock markets are trading at a marginal premium to historical averages and at significant premiums to emerging market peers. This gives us very little leeway to absorb disappointments.
Markets will be driven by events like the Russia-Ukraine situation, US Fed pivot,
general election 2024, etc.
As Nilesh Shah, CIO of Kotak AMC wrote, Markets in the short term are like voting machines reflecting flows, but in the long term are like weighing machines reflecting fundamentals.
Long term Story Intact
While there is much uncertainty in the short term, the way ahead for long term investors is quite clear.
Use every correction to buy good funds/stocks at attractive valuations and sit tight through short term volatility to achieve long term capital appreciation.
What does it mean for Investors? Stick to Asset Allocation
A turbulent year doesn't mean rewriting basic investment rules. While we cant predict whether the markets will go up or down, we can control how we react to it!!
A well diversified and balanced portfolio has consistently yielded returns over time. The table below ranks 10 asset classes in order of their returns.
Stay diversified and don't let your biases lead to suboptimal decisions!
Happy New Year and Happy Investing in 2023!
Source: Livemint, Moneycontrol & ET Markets