2023 Market Review for Asian Investors

2023 Market Review for Asian Investors

There are potential diversification benefits for Asian investors who incorporate U.S. equities to alleviate their tendency for a home country bias. Representing nearly 60% of the global equity market, as measured by the S&P Global BMI, U.S. equities provide a larger opportunity set outside of Asia, along with potential diversification due to different economic structures and cycles between markets, coupled with differing sector exposures.

The $S&P 500(.SPX)$ , widely regarded as the best single benchmark of large-cap U.S. equities, has an estimated $5.7 trillion in assets tracking[1] the index and a robust trading ecosystem. Market participants can consider using S&P 500 index-linked products to efficiently trade U.S. equities.

2023 demonstrates the impact of U.S. equity exposure for Asian investors. A slower-than-expected economic recovery in China with a continued property market downturn and ongoing U.S.-China tensions weighed on market sentiment and performance, making China and Hong Kong among the relative underperformers with their S&P BMI market indices losing 10% and 15%, respectively (see Exhibit 1).

However, equity markets remained resilient in other parts of the world that had stronger economic backdrops. Easing inflation and the potential for lower interest rates led to a sharp market rally in the fourth quarter, with the S&P Global BMI closing the year with a solid 22% total return in USD. The U.S. was a standout performer, with the $S&P 500(.SPX)$ posting a 26% total return in 2023, more than offsetting its loss of 18% in 2022.

Reversals were also seen at a sector level. Information Technology was the best-performing sector, with an impressive 58% gain in 2023 following a 28% loss in 2022; the sector contributed over 50% of the S&P 500’s return in 2023. Communication Services and Consumer Discretionary also posted strong gains of 56% and 42%, respectively, after steep losses of 40% and 37% in 2022, respectively. Utilities and Energy were the only sectors that closed the year in the red after positive returns in 2022 (see Exhibit 2).

At a stock level, the contribution to the market return from a few select stocks was unusually high in 2023. The so-called “Magnificent Seven,” namely $Apple(AAPL)$ , $Amazon.com(AMZN)$ , $Alphabet(GOOG)$ , $Meta Platforms, Inc.(META)$, $Microsoft(MSFT)$, $NVIDIA Corp(NVDA)$ and $NVIDIA Corp(NVDA)$, surged 112% on average over the year, contributing 58% of the $S&P 500(.SPX)$’s return.

Nvidia was the best performer among them, with a 239% gain, and became the 4th-largest stock in the index (up from the 10th position in the beginning of the year). This rally in mega caps resulted in the largest underperformance of the S&P 500 Equal Weight Index[2] versus the S&P 500 (-12%) since the equal-weight index’s inception in 2003 (see Exhibit 3). With the Magnificent Seven rising 4% on average versus the S&P 500's 1% (as of Jan. 19, 2024), the relative performance of mega caps continues to be observed as we enter 2024.

Data as of Dec. 31, 2022, based on S&P Dow Jones Indices' Annual Survey of Indexed Assets.