The year 2023 unfolded as a period of significant upheaval for Australians, marked by steep increases in interest rates and a rapid escalation in the cost of living.
Simultaneously, the tech sector made notable advances in artificial intelligence, while geopolitical tensions continued to impact the global economy.
Reflecting on these developments, Matt Wilson, chief market strategist at moomoo Australia, offered insights into the year's events and expectations for the upcoming year.
2023: the year that was
Global recession concerns
A primary concern among investors was the potential for a global recession in 2024, triggered by rising interest rates and heavy debt burdens across countries, corporations and households.
Looking back, it’s evident that inflation had peaked in most major economies by December 2022. Although inflation rates declined throughout the first 10 months of 2023, they remained high enough to warrant further interest rate hikes by central banks.
The threat of a recession loomed large with economic data indicating shifts in consumer behaviour and a reliance on cash reserves.
In Australia, high immigration numbers and a robust demand for workers led to an increase in salaries, suggesting a ‘soft landing’ for the global economy might be more likely than initially feared.
Electrification and commodities
The electrification of global economies emerged as a dominant investment theme. The transition from coal to renewable energy sources like wind and solar led to a surge in demand for commodities such as cobalt, lithium, graphite and rare earth minerals.
Early in the year, forecasts predicted an oversupply in lithium and an abundance of electric vehicles. These predictions materialised, with lithium carbonate prices plummeting by 73% by November 2023.
While share prices in lithium stocks fell sharply, the sector still attracted significant interest, indicating a sustained belief in its long-term prospects.
Artificial Intelligence surge
In the realm of artificial intelligence, the end of 2022 saw heightened interest, particularly in US-based companies like Nvidia, Google (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL).
This interest spurred significant growth in IT stock prices throughout 2023, positively impacting the Australian IT sector, which saw a 14.73% increase by November.
Geopolitical tensions
The geopolitical landscape was marked by a violent event on October 7, involving an attack on Israel, followed by a strong response from the nation.
The uncertainty surrounding this situation raised questions about the potential escalation into a broader regional conflict.
In the financial markets, oil prices initially surged to US$93 per barrel before settling around US$78. Gold prices remained high throughout the year, with a notable spike to US$2000 an ounce in early October.
The ongoing conflict in Ukraine appeared to have a limited effect on the markets by this point.
The ASX in 2023
The Australian Stock Exchange (ASX) witnessed varied sector performances in 2023.
The Information Technology (IT) sector emerged as the frontrunner, boasting a year-to-date growth of 14.73%, followed by Materials at 5.87%, Consumer Discretionary at 4.55% and Telecommunications at 4.22%.
Conversely, sectors like Health, Consumer Staples and Energy lagged, with declines of 10.09%, 9.32% and 9.29% respectively.
The Energy sector’s underperformance was particularly unexpected, given the high consumer costs which didn't seem to translate into profits for energy companies.
This could be attributed to the high capital costs involved in transitioning away from traditional fossil fuels. In stark contrast, the sector was a top performer in 2022, buoyed by the Ukraine war.
The IT sector, which struggled globally in 2022 amid rising interest rates and profitability issues, made a strong comeback in 2023, largely driven by a surge in Artificial Intelligence (AI) interest.
Health stocks, which had soared post-COVID, saw a downturn in 2023, with a 10.9% decline. Meanwhile, the fluctuating recovery of China's economy had a silver lining, as it revived demand for resources, benefiting Australia's mining giants.
Matt Wilson, chief market strategist at moomoo Australia.
Looking ahead to 2024
Aging population and economic impacts
The retirement of Baby Boomers is anticipated to trigger a significant wealth transfer, the largest in history.
This demographic, known for its spending habits, is expected to boost sectors like Health and Travel in 2024, thanks to their spending on health and leisure in their later years.
Digital disruption and AI
The burgeoning AI revolution, kickstarted by innovations like ChatGPT, is set to transform our lives dramatically, akin to the advent of personal computers.
Tech giants like Microsoft and Google are poised to dominate this space, potentially acquiring companies that offer a competitive edge.
Supply chain reshaping
The COVID-19 pandemic highlighted the vulnerabilities of global supply chains, prompting a shift towards onshore manufacturing and logistics.
Australia might see a renewed focus on utilising critical commodities like lithium and rare earth minerals, although rebuilding its manufacturing base remains uncertain.
Transition to net-zero
The push towards net-zero carbon emissions is expected to continue, albeit with challenges, particularly in the context of Australia’s reliance on renewable energy sources.
This transition will likely witness significant investment.
Political landscape
The 2024 US election, with Donald Trump and Joe Biden as potential candidates, is shaping up to be highly contentious.
Globally, a trend towards more conservative or right-wing governments is observable, which could influence the new European Parliament elections in 2024.
Australia’s economic outlook
Consumer pressures in Australia are likely to intensify, further strained by increasing migration and the resulting demand on housing and infrastructure.
While major global economies might see a gradual decrease in interest rates, Australia's situation, influenced by high immigration levels, suggests that interest rate cuts might be distant. The Australian Dollar, however, stands to gain from this scenario.
The homebuilding sector, despite facing challenges in 2023, will be crucial for Australia. However, the industry struggles, evidenced by the liquidation of numerous companies since June 2023, which could hinder the necessary construction pace.
Insurance costs are expected to rise continuously, impacting consumers and businesses. The financial services sector, dominated by the big four banks, has navigated the rising interest rate environment adeptly. Despite potential competition from more agile fintech companies, these banks are likely to maintain their profitability through 2024.
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