While much debate rages among experts about how investments might do in 2023, there is more agreement about the outlook for the global economy.
Higher interest rates are now starting to bite both consumers and businesses. Thus most commentators now agree that economies around the world will have a slowdown, with some countries plunging into recession.
So can you make money with ASX shares this year?
Pengana investment specialist Tim Richardson said that the "short answer is yes".
"The impact of the global economic slowdown on profitability will be highly stock-specific," Richardson wrote on the Pengana blog.
"Earnings will depend on company sensitivity to interest rates, consumer spending, and secular growth trends. This will bring share market investors a wider dispersion of returns."
Of course, he added that the difficulty is picking which ASX shares will thrive through the tough times.
"Such companies often have two things in common: lower sensitivity to interest rates, which are expected to remain elevated, and lower sensitivity to consumer spending, which is expected to remain subdued."
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Secular growth trends in the secret sauce
According to Richardson, a business that's exposed to long-term structural growth themes has the best chance of growing earnings regardless of the economic cycle.
Already the market is starting to see "lower corporate earnings", triggered by reduced disposable incomes, higher home loan repayments, a slower housing market, and more expensive business financing.
"In this environment, many cyclical stocks whose revenues are sensitive to consumer spending are expected to underperform as they struggle to grow earnings," said Richardson.
"However, companies whose business models are well aligned to secular growth trends which will endure throughout the interest rate and consumer spending cycles are better placed."
Helpfully he identified 10 such long-term global shifts that investors will want to seek when buying ASX shares right now:
- Transition to net-zero carbon emissions
- Labour shortages driving automation
- Ageing population
- Retail behaviour shifting to online and home delivery
- Global travel reopening
- Delayed family formation
- Rise of middle class in China and other emerging economies
- The decoupling of China-US economies
- Reshoring to high-cost countries
- Trust in strong brands
Some of these trends cover a broader range of ASX shares than one might first think.
"The switch to net zero will benefit not just manufacturers of electric vehicles and solar panels but a wider range of critical components such as lithium batteries and high voltage cables," said Richardson.
"Labour shortages will drive vehicle automation, supporting innovation not just in cars, but also in semi-trucks, agricultural vehicles, ride-sharing services, and semiconductors."
The ageing population has implications for healthcare, insurance, aged care and the pharmaceutical industries.
Considering this, Richardson urged investors to think with a long-term horizon when picking stocks to buy now.
"Investors should now consider selectively establishing some exposure to quality global growth stocks, following the market turbulence of 2022 that leaves many at highly attractive valuations."
