Commentary – 1Q23 Summary
Overall, the first quarter of 2023 has been highly volatile for equity markets, yet delivering sizeable gains for stocks of most sizes, styles, and geographies. Among the major asset classes, developed market (DM) equities were the best performers, followed by the US large caps and emerging market (EM) equities. Broadly speaking, high-risk assets outperformed, as demonstrated by the sector performance distribution in S&P 500: the cyclical sectors of Technology, Communications, and Consumer Discretionary rallied 21.5%, 17.2%, and 15.0% YTD, respectively. Meanwhile, defensive sectors of Utilities and Health Care lost 2.8% and 2.3% YTD. Success of risky equities is also illustrated by the 21.4% quarterly rally in tech-heavy Nasdaq 100, which has now officially entered the bull market territory. Lastly, fixed income has also delivered modest capital gains, with Global High Yield and US Aggregate Fixed Income indices climbing 3.1% and 3.0%, respectively.
In terms of geography, developed markets (DM) outperformed emerging markets (EM) considerably. S&P 500, Nikkei 225, and MSCI EAFE (US, Japan, and DM Aggregate benchmarks) have delivered impressive quarterly returns of 7.5%, 7.5%, and 8.0%, respectively. Europe lagged the DM peers, with its benchmark equity index, Stoxx 600, gaining 5.4% in the same period. Meanwhile, the EM equities have struggled to keep up. After an impressive start to the year due to the prospects of China’s reopening, investor optimism cooled and the rebound was hindered. The relatively poor performance of EM equities can also be explained by regions’ higher exposure to financial sector that saw considerable headwinds in past month.
