Carmignac: 2023 in 10 facts

December 27, 2023

Kevin Thozet, member of the investment committee at Carmignac

1. US growth surprised on the upside.  The world’s largest economy was expected to stall as we entered  2023. In fact, it will grow above its potential again this year at close to 2.5%.
2. ….  but the opposite took place for China. Hopes of the reopening proved short lived and the economy petered out.
3. Disinflation continued. The  consumer price index moved from close to 10% in the euro area to less than 2.5% over the past 12 months (and from 6% to 3% in the US). All contributors moved downward although core services didn’t decelerate as fast as other components.
4. Developed market policy rates were brought to their highest level in 23 years – and stayed there.
5. Fixed income markets joggled in the tug of war between recession scares, resilience hopes (and scares) and disinflation. For sovereign bonds, we saw daily moves (+2% on certain days) not seen since the Great Financial Crisis.
6. Equity and fixed income volatility diverged.  Equity volatility was  back at pre-Covid levels while fixed income volatility remained at record high levels – an usual drift as the hiking cycle advanced.
7. Developed equity markets marched on, rising to an  all-time high. US equity markets were notably helped by the so-called Magnificent 7 and obesity treatment stocks which were up by +100% (only Bitcoin did better at +160%!). While defensive sectors such as utilities, staples and  healthcare (ex-obesity drug manufactures) posted close to negative returns, as did energy.
8. Dispersion was the key theme of the year - for equity and credit markets alike. The rising cost of capital and radical change  in narratives throughout  the year kept markets on edge. This was  a great environment for stock and bond pickers, provided they were on the right side of the dispersion curve.
9. Carry was the most favored performance engine this year and rightly so.  EUR investment grade and high yield credit markets returned 7.5% and 12% respectively this year. With very limited volatility, the asset class claims the top spot in terms of risk-adjusted returns for the year.
10. Equity/bond correlation moved in wild swings from being welcomely negative, as some US regional banks collapsed, to being positive for the worst and the best as the year ended with an everything rally!