alright so welcome to part two of my top

5 stock market forecast for 2023. if you

have not watched part one do pause this

video go watch part one and I'll see you

back here in part two in a couple of

minutes

[Music]

my fourth forecast is that the Chinese

stock market has entered a bull market

and the bull market is only at its

beginning stages now if you take a look

at this chart you can see that the China

Market specifically the Hong Kong market

it has been in a bear market for over

one and a half years

over here and all this was due to all

these issues right it began with the

governments

regulatory Crackdown on tech companies

like Alibaba and tencent and they

cracked down on the education sector

that scared away investors and then we

had the real estate crisis that the

Chinese government created themselves by

forcing real estate companies to reduce

their leverage and follow these three

red lines which a lot of them couldn't

do so a lot of them have like imploded

the Evergreen debt

situation of course China then going

into this crazy zero covet policy for

three years isolating themselves from

the world and all this slowed down the

economy

now everything has changed in the last

two months the Chinese government has

totally reversed all their policies so

now the regulatory crackdowns are over

in fact now the government is beginning

to assist the tech companies to grow

again in fact they just approved the

Alibaba M group to raise New Capital so

that's signaling that the Chinese

government is now going to help the tech

companies because they know they need

the tech companies to grow the economy

so now uh they are actually in that

stimulative framework and next the

Chinese government is now going all out

they're going to do whatever it takes

like The Avengers to rescue its ailing

property sector and they are now

contemplating removing

the regulations the tree red lines that

cause the property police to get into

trouble in the first place all right so

that's over and of course we know that

right now they did a big 180 and they

abandoned their zero covet policy and

now China's government is reshifting its

focus to boosting its economic recovery

so

Everything Has Changed China has now

re-re

awakened all right it's the second

biggest economy

and you can see that throughout this

entire bear Market

um

the index never got above its 200-day

moving average now you can see since it

bought them in late of October the Hang

Seng Index is up 44 percent

and it's just the beginning you can see

that it just crossed above the 200

moving average and whenever a market

crosses above the 200 moving average and

you see the 200 day beginning to flatten

and slope up that is a very powerful

long-term bull market signal so I think

there's a lot of room to grow

a lot of

uh huge gains ahead right so in fact

after growing 44 I think the Chinese

market can still grow double digits this

year and possibly even outperform the

U.S markets for two reasons the first

reason is that China's Market is still

extremely undervalued even after surging

44 if you look at the China Hong Kong

hunting index it's now selling at a PE

of 9.6 times earnings nine times

earnings that's plenty cheap right

compared to the U.S market 20 times

earnings so China is

half price of the US now you could argue

that the U.S is growing faster than

China in terms of their corporations but

then again China is still really really

cheap the other thing that's different

is remember the U.S and China are on

opposite monetary policies while the U.S

is on a tightening monetary policy in

the U.S they are increasing interest

rates

they are reducing money supply in China

is a complete opposite China they're

doing whatever they can to stimulate the

economy they are cutting interest rates

they are increasing the money supply so

all this is causing a huge uh run in the

Chinese market so you can see the pboc

the Central Bank in China targets

stimulus as China focuses on price risk

which means to say they don't mind

creating inflation in China right so

it's a very different metric over here

so there are many ways to of course

um uh write on this bull market in China

if you're not comfortable owning

individual companies like Alibaba or

tencent you don't know which are the

good companies you could look at ETFs

right so for example one of the ETFs is

the k-web ETF this is the Chinese

internet ETF listed on U.S markets and

you can see

um again it's been in a bear Market

for over one and a half years and right

now it has begun to

cross above the 200 moving average and

all the way back to the top you have got

a huge upside potential of almost 200

percent gain just to get back to where

the bear Market started of course if you

go beyond that there's a lot more

potential ahead now of course disclaimer

I owed a lot of Chinese stocks as well

right about 10 of my portfolio are in

Chinese equities and I also have played

some short-term trades on k-web and

other Chinese stocks and ETFs and I've

also been buying up more Alibaba uh in

fact a couple of months ago so yes I am

heavily invested so

um in full disclosure right okay so the

fifth forecast is that this year

I think that the sectors that would have

uh the best chance of outperforming

would be technology communication

services and consumer discretionary

because they were the worst hit sectors

last year so this was last year's

performance the s p dropped 19 last year

but we look at the different sectors

there was a big disparity in their

performance you know of course last year

the best performer was energy because of

the Ukraine war causing all prices to go

up but that's you know started to come

down right now and the three worst

performing sectors last year was

technology like your Apple

like your Microsoft like your Salesforce

like your service now okay consumers

cyclicals also known as consumer

discretionary same thing right so

consumer psychicals are your Nike your

Lulu lemons your Amazon Your Home Depot

your Lowe's those are your consumer

cyclicals and next communication

Services uh the worst performing of the

lot like your Netflix your

meta your alphabet these were the three

worst performing sectors

now again why were they so badly hit

last year because of

the very fast rising interest rates that

is what caused these three sectors to

really really sell off now here's the

interesting thing although there are the

three worst sectors last year in the

short term by the long term these three

sectors tend to outperform the S P 500

because companies within within these

three sectors tend to have larger higher

profit margins higher return on invested

Capital higher growth rates and stronger

economic modes if you take a look at

again

the longer term view of the market you

can see this is the S P 500 ETF right

here and in the long run which sector

outperforms again technology why because

technology companies have higher profit

margins higher return on Capital higher

growth rates higher scalability all

right consumer discretionary many of

them have strong brand names uh

sustainable competitive advantage and

communication Services which you don't

see here because communication Services

uh was only recently introduced uh in

this chart so you don't really have that

um data going that far back but if you

look at the companies within that like

alphabet and meta for example or like uh

Netflix they have way outperformed the

market in the long run

and last year the sector that did the

best energy

yes in the short term it can do very

well but in the long run

energy utilities and materials they tend

to underperform the market because they

tend to have lower profit margins they

are very competitive they've got higher

maintenance capex and lower Returns on

Capital all right so the opportunity is

that you've got the three

best performing sectors at its cheapest

point because they sold off last year

and usually the worst performing sector

in one year will tend to become the best

performing sectors in the years to come

because the market is a mean reversion

machine right it reverts to the mean

worst off becomes best off very often so

if it's not this year it'll be next year

and again so there are a few reasons why

I expect these three sectors to perform

number one they possess the strongest

operating margins or in other words

profit margins if you take a look at

this

um

chart this is from DBS Bloomberg

research you can see again the

technology sector and communication

Services sector they are profit

operating margins

in red and yellow are way above the S P

500 Broad Market profit margins so the

companies are just more profitable

basically right next

they have the highest projected earnings

growth potential in 2023 uh with

technology at 11 Communications 10 and

consumer discretionary at 27 all right

the third thing is that

if

what I say is Right inflation remains

moderate and the 10-year treasury yield

continues to go down then earnings

multiples should expand right your PE

multiples your price of sales multiples

and you can see that these three sectors

technology

U.S consumer discretionary and services

are projected to have to have both

positive

earnings growth next year and positive

revaluation of price multiples so this

is what can drive their stock prices

higher so does it mean that all stocks

within these three sectors will do well

not necessarily so I would only want to

select the companies that have got

strong earnings growth

or share BuyBacks and or good dividends

that will drive the share price higher

now some people think that Adam the

stock market cannot go up unless the FED

pivots unless the FED Cuts interest

rates unless the FED increases money

supply stocks can't go up is that true

yes it is true for companies that don't

make money it is true for companies that

don't do share BuyBacks they don't pay

dividends then they just need money

supply to pump the share price up so

what you have to understand is that

they're all together four things that

drive a stocks price gains what are the

four things number one most important

thing are earnings per share

when a company increases its earnings it

makes more money

the shares are worth more right so you

can see uh this

light blue this contributes to the share

price gains now besides earnings per

share the next thing are share BuyBacks

so when a company buys back shares it's

a way of returning Capital to

shareholders when they buy back share

each share becomes worth more so share

BuyBacks also Drive drives price games

the third is when

a company pays dividends when you pay

dividends you collect dividends you're

willing to pay more for the shares

because of a dividend payout right

the fourth thing that causes the share

price to go up is PE multiple expansion

that means people are willing to pay

more for the same earnings per share

and what causes PE multiple expansion is

the feds monetary policy so when the FED

uh Cuts interest rates when the

increased money supply PE expands

when a Fed increases interest rates and

they cut my Supply PE shrinks right so

right now what's happening you see in

the last many many years where the Fed

was printing money when the Fed was

lowering interest rates

could go up easily even without earnings

without dividends without BuyBacks

prices can still go up because of PE

multiple expansion but now that there's

no P expansion because the FED is not

cutting interest rates they are not

printing money as easily then you need

earnings per share growth or dividend

growth or share BuyBacks you need these

three things for the stock price to go

and that's why it's very important in

this year for you to only pick stocks

and do whole stocks of the highest

qualities if you're holding stocks that

are not making money of low quality they

ain't gonna go out and that's why it's

really important to understand how to

analyze only the best highest quality

companies in the market you can see from

this chart that in the last 10 years 14

of the gains of the S P 500 did not come

from earnings they don't come from

dividends they don't come from BuyBacks

they came purely from PE multiple

expansion which is purely from the

increase in money supply and the fat

cutting interest interest rates so how

do you get 14 so again uh the PE

multiple expansion is 48.4 if you take

48.4

divided by 337 which is the total gain

of the market that gives you 14 so what

does that mean so again what this means

is that Even If the Fed doesn't pivot

even if the fat doesn't lower interest

rates the stock market can still go up

but you go up less it will go up about

14 less and it also means that if you

focus on companies with high earnings

growth High share BuyBacks or dividends

you don't need the fat to Pivot these

companies will go up regardless and

these are the companies that I own

now a lot of people ask me Adam why do

you start buying you know stock when

it's in a bear Market when there's so

much uncertainty and so much pessimism

why don't you wait for that to be clear

skies ahead when there's a confirmed

bull market when there are no more

problems to start buying stock well if

you take a look at this chart you

understand that ironically

the safest time to buy high quality

companies is when you buy them when the

price is undervalued when you're getting

a margin of safety now when are high

quality stocks cheap

when people are fearful when people are

pessimistic so that's when you get the

best deals that's when it's the safest

time to buy and sure the price could go

down even lower in the short term but it

doesn't matter because eventually once

the bull market starts when you get in

early you get the highest returns over

time you can see that during the 2020

bear Market when the market bottomed in

March of 2020 by the time the media told

you it was safe to buy it was 11 months

later on the 7th of February 2021 when

they said the stock market is bouncing

back for the right reasons right time to

buy and by the time they tell you it's

time to buy guess what the market is

already up over 70 percent so you're

buying in at a premium again you're

buying in when stocks are no longer

cheap

if you want to get in when stocks are

cheap to get the highest returns you got

to get in when there's pessimism bad

news remember bull markets are not born

on optimism bull markets are always born

in pessimism and the markets always

climb a world of worry the early stages

of a bull market never look like a bull

market in the early stages of recovery

in the early stages of a new bull market

you find that most people are in

disbelief most people are in denial and

the media is always telling you why it's

going to fail like for example at the

bottom of the bear Market when you

should buy what did the media say it

says the worst sell-off isn't here yet

Banks and investors want over here when

I started buying it says economies fear

drawn out slap as losses deepen further

over here Equity Market rarely runs out

of steam really right over here stock

market investors are too optimistic

really okay over here

stock search is a bear Market rally that

will collapse really no it didn't it

went up another couple hundred percent

right all the reasons the stock market

gains are not to be trusted

stocks may have hit the ceiling over

here some investors are making the

biggest bet against the market in nine

years a lot of you are shorting the

market at this point of time the coming

earnings season could bring a lot of

these stocks down to earth and over here

official announcement of a recession so

notice when they announce a recession

that means that the bull market is going

to continue right over here big tech

stocks are struggling small tech stocks

could be next all the freaking bad news

dudes you want to buy one that's

freaking bad news because when it's good

news it's too late to buy right so think

about it now again am I saying that the

bear Market is over I'm not saying that

right we could still go lower this year

everything is possible but what I can

say is this there are a lot of Bargains

in the market right now and I have been

buying and I will continue to buy as

long as you buy great quality companies

that are showing earnings growth that

are buying back shares or paying

dividends you will get really greatly

rewarded in the next couple of years to

come just remember remember we are only

at the middle of this secular bull

market that's going to last at least

another six to ten years hope you

enjoyed this video and I'll see you in

the next one

have a great beer ahead and may the

markets be with you if you want to catch

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