By Senad Karaahmetovic
As sell-side analysts continue to share their top picks for 2023, Citi strategists highlighted the top contrarian trades for 2023.
Understandably, contrarian traders also had a difficult year, they note.
“On average, contrarian stock-picking strategies underperform, and this year was no different. Bearish calls on IT worked, but their contribution was wiped out by bullish calls on China and Energy stocks,” the strategists said in a client note.
If investors want to go against consensus, it appears the way is to be long Tech stocks and hope U.S. rates have peaked. Similarly, they will be selling Energy stocks on hopes the conflict in Ukraine is ending.
More contrarian trades include selling oil, gold, and the dollar while buying emerging and developed market equities.
“Contrarians are currently long Growth, bearish Value and prefer cyclical to defensive sectors. They will likely be bullish on US equities, especially Tech stocks, and bearish Energy. Within EM, they will likely buy anything China-related,” they added.
These trades are based on the thesis that inflation is easing and global rates are peaking. This kind of environment makes a soft landing for the global economy a base-case scenario.
“If only life could be so perfect. We think the actual outcome will be more complex,” the strategists concluded.