Five alternative themes for investors to consider in 2023

Decentralised finance, a rebound in cryptocurrencies, artificial intelligence and clean energy are trends to watch out for

Credit: Nick Donaldson / Getty

It was a disastrous year for equity investors in 2022. The worst year since the 2008 stock market rout. The S&P 500 benchmark index lost 20 per cent, the Dow sank 18 per cent and the Nasdaq fell a staggering 33 per cent, as all sectors ended in the red in 2022, with the sole exception of energy.

Bond markets also declined by 12 per cent while a whopping $2 trillion was wiped from the global cryptocurrency market.

Stock market pundits are predicting more pain in 2023 before the bleak scenario improves in the second half of the year.

It is difficult to predict with any certainty what the top investment trends will be, as the investment landscape is constantly changing and can be influenced by a range of factors.

However, here are some alternative trends that could dominate the investing space this year.

Investing for good

After gaining mainstream attention in recent years, the environmental, social and governance (ESG) investing trend is expected to become more popular in 2023 — and beyond.

Sustainability has become a major focus of ESG investing as investors seek to align their investments with their values and prioritise companies working to address environmental and social issues.

“The US Senate’s passing of a sweeping $430 billion bill to help fight climate change underscores why every investor needs exposure to ESG investments to build wealth over the long term,” says Nigel Green, chief executive and founder of deVere Group.

Global ESG assets are on track to exceed $53 trillion by 2025, according to Bloomberg Intelligence, representing more than a third of all assets under management.

The trend is driven by investors who want to not only generate financial returns, but also make a positive impact on the world. Increasingly, they are demanding greater transparency from companies around ESG credentials of businesses.

This includes the disclosure of information about a company’s environmental and social impact, as well as its governance practices.

Mainstreaming of crypto

There's been a relentless steam of negative cryptocurrency headlines over the past year. Scandalous cases of fraud related to cyber crimes and algorithmic glitches conspired to bring about a collapse that resulted in the value of the global cryptocurrency market cratering from its peak of $3 trillion in November 2021 to under $1 trillion by the end of 2022.

However, blockchain enthusiasts insist the cryptocurrency story is far from over. They expect a comeback of digital currencies in 2023, although with some regulatory protection.

“The crypto winter will thaw in the spring of 2023, when inflation will have peaked and central banks [will start to] unwind their rate hikes,” says Mr Green.

Investors can expect cryptocurrency to remain in the news as virtual currencies continue to gain mainstream acceptance.

Of particular interest is the development of decentralised finance (DeFi), the fastest-growing area of the blockchain economy.

DeFi refers to financial applications built on blockchain technology that operate without a central authority such as banks or brokers. This trend is expected to continue to grow this year as more people turn to DeFi instruments, including borrowing and lending to trading and insurance.

The growth of non-fungible tokens is another sub-theme to keep a close eye on. NFTs are unique digital assets that are stored on a blockchain and can represent a range of assets such as art, collectibles and even virtual property.

One of the most prominent developments that the cryptocurrency market can expect this year is regulatory clarity.

Cryptocurrencies have been largely unregulated for years, but we could have increased regulatory oversight this year, which could help to increase investor confidence and fuel institutional interest, paving the way for further mainstream adoption of cryptocurrencies.

Booming technology sector

Notwithstanding the annihilation of technology stocks in 2022, the technology sector has been a strong performer in recent years.

There is little doubt that through and beyond the continuing macroeconomic headwinds, the sector will continue to grow, driven by factors such as increasing adoption of new technology and an ecosystem of products and services built around them.

The global push for sustainability serves to bring a sharper focus on technology companies that are working to address these issues. This could make environmentally focused technology companies attractive to investors.

In light of recent high-profile cyber crimes, the market for cyber security is also expected to continue to expand this year.

Growing incidents of cyber attacks are forcing corporations and governments to invest in protective measures. As a result, cyber security companies could expect increased investor interest.

Another area of growth is the artificial intelligence market. Rapid advances in AI technology are boosting the adoption of AI-powered products and services across industries ranging from cars to health care and aerospace.

“As cost of living eases and global growth picks up pace throughout 2023, investors will be seeking to increase their exposure to growth stocks,” says Mr Green.

“These are stocks that grow at a rate higher than the market average, typically tech stocks.”

There’s hope in health care

The global pandemic galvanised the healthcare sector and sparked both medical and technological innovation.

However, medical science has taken major strides in other critical illnesses such as cancer, diabetes and cardiovascular diseases.

Drug makers have been working on providing therapies and treatments, launching a steady supply of blockbuster drugs. Healthy annual revenue generated from these drugs helps pharmaceutical companies to keep the pipeline for new treatments humming.

Digital health technology, such as electronic health records, telehealth platforms and mobile health apps, have the potential to attract greater investor interest.

The part investors may find particularly reassuring is that few sectors are as immune from global political or economic uncertainty as health care.

Predictable cash flow and revenue make healthcare companies a sensible choice for investors.

Green energy sources — in pictures

Renewed push into clean energy

As the world continues to pivot towards a cleaner future, the demand for renewable energy sources could continue to grow.

Factors such as greater government support, new policy initiatives and the declining cost of technology will continue to drive the world towards renewable energy.

With more renewable energy production, there is a growing focus on developing technology that can store excess energy. This could make investments in renewable energy storage companies a solid contender for investors.

There are particularly attractive opportunities in the solar and wind energy market.

Solar remains the fastest-growing renewable energy, representing more than half of the renewable capacity installed internationally.

The market for solar energy is expected to jump to $293 billion in 2028, from $184 billion in 2021, as the cost of solar energy continues to plummet and more countries adopt it as a key part of their energy mix.

The offshore wind energy market has also grown steadily in recent years.

Global installed offshore wind capacity is projected to rocket to 630 gigawatts by 2050, from 40 gigawatts in 2020, creating revenue opportunities for wind farm operators.

Sustained growth in electric vehicles is another important component of the transition to a low-carbon future.

As EV adoption grows, car makers leading the green mobility revolution are becoming increasingly attractive.

It is worth noting that these are just a few potential trends to consider. As with any investing decision, always do your own research to assess the risks and potential returns of any investment before committing your money to it.