Equity markets did a full U-turn between the end of 2022 and the beginning of 2023. Despite still elevated uncertainties on the macroeconomic front, this was one of the best Januaries that equity markets have seen in a long time. Our thematic investment team has identified a number of key developments that investors should pay special attention to:
- Tech: The key development was the launch of ChatGPT by OpenAI, which is the first tool that makes AI available for the broader population. In our view, there is limited differentiation in the AI algorithms and many other tech companies will launch their own versions of ChatGPT (as Microsoft, Alphabet and Baidu have just done so, even though with varying degrees of success). However, semiconductor companies will be major beneficiaries of this trend, given the high computing intensity of these AI algorithms.
- Ecology: January saw an important M&A announcement with the USD 7.5bn acquisition of Evoqua Water Technologies by Xylem. This transaction will create a global leading US-based water champion that serves multiple water technology end-markets. Our Green Planet and SDG Opportunities strategies benefitted from the deal through their high conviction positions in Evoqua.
- Biotech over MCOs: Small & mid-cap biotech companies posted strong outperformances driven by expectations of new innovative drug approvals, important clinical trial readouts and increased M&A activity. On the other hand, although the operational performance of Managed Care Organizations (MCOs) remains strong, their stock prices are struggling in the face of tougher regulatory environment and labour shortages.
- Consumer spending: The luxury sector has continued to benefit from a robust demand in January, on the back of China’s reopening. While the share prices of luxury companies have already benefitted from this, we see further upside as companies will report on a strong consumption rebound. Furthermore, Chinese travel has rebounded strongly with more than 300m domestic tourists travelling across China during the Chinese New Year holidays, implying a 23% year-on-year growth and 89% of 2019’s level.
