Scottish Mortgage Investment Trust (LSE:SMT) shares started the year 31% down against January 2022. The corporate social media, which focuses on growth, reflects the value of the shares it owns.
Scottish Mortgage shares have fallen in line with slowing growth and technology over the past 18 months.
But what does this mean for 2023? Now, at £7.40, the stock is trading near its three-year low. But can it be better than this low starting point?
In 2022, global economic conditions made it less suitable for conventional growth stocks. These are companies that often need to borrow to finance expansion.
But the increase in interest rates has increased the cost of borrowing. A contracting global economy is also a problem, as funding can be hard to come by and the market is unlikely to be competitive.
This is a big challenge for organic farmers who have not yet made an income, and those who do not have large savings.
As we enter 2023, the biggest problem is that these problems are not going away. There appears to be little sign that interest rate hikes will stop in the first half of the year – in the UK at least – and economic growth is expected to slow.
Can the situation be improved?
As an investor, I always try to look six to nine months into the future. And the second half of the year seems to be better than the first. That’s when we can expect to see lower interest rates and economic growth, especially in Western countries.
There are many high standards when looking at the top companies in the Scottish Mortgage portfolio. Many of its top farms are profitable, and some have large reserves, including Tesla and Modernization.
Another aspect is China’s reopening and abandonment of zero-Covid. The next two months can be challenging as the virus spreads, but overall I hope this is good for the business environment. Chinese stocks feature well in the Scottish Mortgage portfolio.
Will I buy more?
I already buy Scottish Mortgage shares, but at the current level, I would buy more. Values are a key factor in my decision – I don’t want to pay retail prices. The products in the growth part of the market are currently trading with more attractive prices after the correction.
In addition, Scottish Mortgage is currently trading at an 8.5% discount compared to its net asset value (NAV). Although the NAV can be difficult to calculate, especially if the trustee owns unlisted shares, this large reduction should be considered a good thing.
Finally, I see better news for the global economy on the horizon. The next few months may be tough, but I’m now buying for improved economic conditions later in 2023.
It’s hard to make predictions in the current environment, but I believe Scottish Mortgage, with its star pickers, will outperform the market throughout 2023.
James Fox has positions in Scottish Mortgage Investment Trust. The Motley Fool UK recommends Tesla. The opinions expressed in the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our specialized services such as Share Advisor, Hidden Winners and Pro . Here at The Motley Fool we believe that thinking about a lot of different information makes sense we are better entrepreneurs.
Motley Fool UK 2023