When consistent losers become winners

History underlines that persistent underperformance over 2-3 consecutive years from either country stock markets or asset classes can subsequently lead to impressive double-digit returns during the following year. We know that 2022 was a difficult year for most investment assets, but in order to profit from this “mean reversion” effect, we look at regions and asset classes that had also suffered in 2021, to identify potential rebound candidates.

Three regions and asset classes stood out: Chinese equities, Emerging Market sovereign bonds and silver. All three have heavily underperformed their broad asset classes (equities, bonds, commodities) since late 2020 or early 2021. In each case, we see strong fundamental drivers to underpin any rebound in 2023.