Which Major Asset Class Ranked #1 in Returns in 2023?

Asset markets performed significantly better in 2023 than in 2022.

However, it remained a challenging year, driven by higher-than-expected policy rates along with stubborn crude oil and commodity prices.

The Russia-Ukraine war also continues unabated. At times, stepping back to take an annualized view is essential.

Looking at broad macro trends beyond your primary traded assets provides valuable context.

Here is a breakdown of major asset returns from early January through the end of November 2023.

Bitcoin Defies Expert Consensus

Reviewing the 2023 asset return rankings reveals striking divergences. The clear outperformer in financial markets this past year was Bitcoin.

This outcome caught most analysts completely off guard. While comparing equity indices directly to Bitcoin has its caveats, Bitcoin stands undeniably as the benchmark for the crypto asset class. 

This year's massive performance was also driven, paradoxically, by the base effect following its brutal -64% drawdown in 2022. 

The NASDAQ Demonstrates US Dominance

The second-highest return among major indices in 2023 came from the NASDAQ, which rallied 36%. It reinforced its status as a core market leader.

Despite broad diversification strategies, beating NASDAQ returns this year proved difficult for most traders.

What fueled the NASDAQ's rally in 2023?

First, the United States remains the epicenter of leading-edge technology innovators.

Second, with technological integration reducing global expansion barriers, premier tech firms worldwide still prioritize listing on the US NASDAQ.

Ultimately, the NASDAQ acts as an institutional magnet for top-tier global companies—showcasing the underlying strength of the US economy.

Korean equities also delivered a solid year, with the KOSPI gaining 13% and the KOSDAQ rallying 23%.

For investors establishing new positions at the start of the year, these were satisfactory returns.

However, context matters: in 2022, the KOSPI dropped -25% and the KOSDAQ slumped -34%.

Against that backdrop, this year is better classified as a partial recovery rather than a structural bull trend. Traders who bought near the 2021 highs remain in underwater positions. 

Weak Yen, Resilient Japanese Equities

After holding up relatively well in 2022 with just a -3% decline, Japanese equities surged 28% this year, marking two consecutive years of strong momentum. 

This rally was driven by historic Yen weakness, which accelerated a clear cyclical recovery in core export sectors: semiconductors, autos, factory automation, and robotics.

Improved travel account balances and aggressive corporate share buybacks also supported the rally.

By sector, 2023 Japanese equities were led by Utilities (power, etc.), IT, Consumer Discretionary, and Industrials. 

In 2023, Korean retail and institutional holdings of Japanese equities climbed 56% year-over-year to 4.9 trillion KRW.

Japanese stocks proved significantly more attractive than Chinese equities, which saw substantial liquidation. However, despite the 28% headline index gain, net returns were muted for Korean investors.

The KRW/JPY cross dropped below 900 KRW, causing an approximate -10% FX drag on unhedged holdings year-to-date. 

Japan has demonstrated impressive structural resilience breaking out of prolonged stagnation.

Still, whether it can outperform US mega-cap tech into 2024 remains an open question.

From a portfolio diversification standpoint, however, an allocation to Japanese equities remains a valid macro play.

South Korea's KOSDAQ Delivers Momentum

While the KOSPI is dominated by mega-caps, the KOSDAQ is driven by small-to-mid-cap growth plays.

The KOSDAQ closed with a 27.57% year-to-date return, outpacing the KOSPI.

Historically, the KOSPI has outperformed the KOSDAQ in most market cycles, making this year's reversal notable.

The primary catalyst behind the KOSDAQ's outperformance was the EV secondary battery sector, whose heavy weighting significantly lifted the index.

The KOSPI finished the year up 18.73%. After heavy drawdowns across the board in 2022, 2023 delivered a measurable rebound with respectable net gains. 

As you assess which asset classes will lead or dominate the market in 2024, analyzing the lessons of 2023 is your best foundation for disciplined risk management.