#Market Strategy — 13.01.2023

2023 Equity Outlook

Q&A with Chris ZEE Head of Equity Advisory, Asia, BNP Paribas Wealth Management

Chris Zee

Head of Equity Advisory, Asia
BNP Paribas Wealth Management

What is the outlook for equity in 2023? Which sectors do you prefer?

For US equity, our base case is forecasting for a mild recession in 2023, but we should definitely remain invested in US equity.

Outperforming sectors are: Selective Consumer Discretionary (riding on China’s re-opening), Healthcare (groundbreaking discovery in new drugs curing Alzheimer's disease and cancer as well as M&As), Industrials (benefit from the Biden’s inflation protection bill). However, Tech may underperform due to still hefty valuations and uncertainties on regulations.

Given the Russia-Ukraine warfare is still on-going, coupled with the high inflation across EU (including UK), in general, EU Equity valuations had already mostly priced in the inflation associated with the warfare. For sectors, we favour EU banks (beneficiaries of rising rates), EU luxury (beneficiaries of China’s re-opening), EU autos (beneficiaries of EV transitions).

For HK/China Equity – Given China’s committed to re-opening, we strongly believe “the Bulls are back”, on the back of:

1) China’s re-opening

2) Stimulus to property sector

3) Easing of regulatory overhauls towards China Tech.

For sectors, we favour Tech, Healthcare, Tourism, Consumer Discretionary, Insurance, and Electric Vehicle.

What do you think of the Tech sector?

Between China and US Tech, China Tech’s valuations are much more appealing compared to the US Tech. Also, China Tech is coming towards the end of its domestic regulatory overhauls but the US Tech may be emerging towards this direction. In addition, it appears that the US Tech now lacks game-changing products/services that may further propel the valuations.

The key catalysts for China Tech are:

1) Resumptions of new video game approvals,

2) Potential revival of IPO for a major fintech company

3) Attractive valuations

What could be the “potential headwind” for the equity market this year?

Major Global headwinds include:

1) US Fed’s rate hiking schedule and global inflation

2) Status on Russia-Ukraine’s warfare

3) Potential repercussions on COVID variants after China’s re-opening

4) Supply chain implications after Biden’s Inflation Reduction Bill, in particular towards the tech sector.