What are the best assets to Invest in the latter half of 2023?

Publish Date 6.20.2023

The world of finance and investments is constantly evolving, presenting us with both challenges and opportunities. In the dynamic macroeconomic environment we find ourselves in, it's essential to stay informed and make strategic decisions that can yield positive outcomes. Let's explore some key insights and potential avenues for growth across various sectors.

Macro: Embracing a Balanced Approach 

Recently, the Federal Reserve opted to maintain the federal funds (FF) rate at 5-5.25%, foregoing a rate hike. However, projections for the FF rate in 2023 have increased by 50 basis points to 5.6%. It's important to note that the current policy rate is already at a restrictive level, and the economy is experiencing the strain of higher rates. Consequently, it's likely that the number of future rate hikes will be limited, curbing the upside potential for US rates. Should the Fed decide to cut rates, risk assets could experience a rally, even in the face of an economic slowdown. While equity markets have already priced in much of this optimism, the fixed income market may have more room for growth.

Equity: Uncovering Hidden Gems

Within the equity space, one sector that warrants attention is the hotel industry. Although often overlooked, it benefits from strong tailwinds as travel continues to rebound. The industry is poised for sustained growth over the next few years, presenting an opportunity for investors. Notably, issuers with unique business models, such as Airbnb, can offer a distinct advantage in this evolving landscape.

Simultaneously, as the likelihood of a recession looms over the United States, defensive names with a wide moat become appealing. Consider data vendors like SPGI and MSCI, who possess a competitive edge and offer stability during challenging economic periods. Additionally, companies with significant liquidity, such as BRK, may be an attractive option for risk-averse investors.

FX: Weighing the Options 

For Japanese investors, the USDJPY exchange rate currently stands at 140. If you anticipate the Japanese Ministry of Finance intervening in the FX market when it reaches levels around 145-150, converting JPY to USD might not appear enticing. However, it's worth noting that the cost of FX hedging is around 6% at present, making long-term hedging less favorable for Japanese investors.

For those who have USD, they can earn >5% by just hedging FX against JPY which I find very attractive. 

Charting Your Course

In this ever-changing economic landscape, seizing opportunities requires a keen understanding of the macroeconomic environment and a calculated approach to investing. As you navigate these dynamic markets, keep an eye on the Federal Reserve's stance on interest rates, identifying potential catalysts for risk asset rallies. While focusing on sectors with growth potential, don't overlook the hidden gems within industries like hotels, which can offer unexpected opportunities. Finally, carefully weigh the costs and benefits of FX hedging strategies, considering factors such as potential interventions and associated costs.

Remember, investment decisions should align with your individual risk appetite and long-term goals. By staying informed, remaining adaptable, and taking measured steps, you can position yourself to seize the opportunities that arise within the ever-changing world of finance and investments.