15 Jan 2024
Winston Churchill said: ‘A pessimist sees the difficulty in every opportunity, an optimist sees the opportunity in every difficulty’. From the US banking crisis and China’s property crunch to bond market turbulence and conflict in Ukraine and Israel, investors have had choppy waters to deal with in 2023 but, despite fears and pessimism, resilience has prevailed, and most share prices have rebounded after a very challenging 2022. Where will the opportunities be in 2024 and should the glass be half empty or full?
2023 hasn’t quite been the disaster area expected when it comes to recession, but savings built up by households and businesses during the pandemic must be nearing depletion point by now. Government influence through spending and taxation is coming to an end and with the cost of living having skyrocketed over the last two years, refinancing needs are back with a vengeance in an environment of credit tightening. The prevailing view is that interest rates have peaked as inflation is being brought under control, but how does this backdrop pan out and what comes next? Will rates only be cut when the damage to growth become obvious?
Recession, soft-landing or no landing? Is a recession heading our way with some sort of status quo returning to the labour market and price stability making a comeback? Europe is slowing down faster than the US and we’re already seeing signs of a recession. Will this direction of travel take hold, and will we see the same trend in the US in the coming months? Or maybe US economic growth will continue to be resilient, and Europe’s current slowdown will reverse? Wall Street seems convinced that a soft landing will be achieved, and a deep recession avoided, but economic growth will be slow as a result. No matter where you’re placing your bets, it’s all to play for in 2024 and the mood may shift at pace.
What of the Magnificent Seven? Coming into 2024, between them, they were worth more than the stock markets of the UK, Japan, France, China, and Canada combined. They now make up roughly 20% of the global stock market and last year their shares rose by around 70% on average, heavily contributing to stock market gains as a whole. If you had them in your portfolio last year, you were likely to be sitting pretty, but the outlook for 2024 may not be quite so marvellous. According to data from Refinitiv, market shares of the Magnificent Seven fell by $316 billion over the first two trading days of 2024. Is further growth achievable or has their success story peaked? Given that they have many similar characteristics, one thing seems likely – if one falls, the domino effect will render them all much less magnificent.
The S&P 500 ended 2023 with a gain of more than 24% and the Dow finished near a record high. The US dollar appears to have peaked in parallel with stabilisation in the developed world, creating value in international markets. A resilient economy and an improvement in economic sentiment have driven returns in the US in 2023 but with 2024 being a presidential election year, the outlook may be skewed to some degree by the political landscape, making markets in this part of the world more reactive and volatile. Should investors look at areas of the world where there’s potential for greater growth?
Where is the optimism? Emerging markets are expected to have higher earnings growth than the developed world in 2024. Divergencies exists of course and not all countries will profit to the same degree, but emerging markets equities should benefit from an improving growth premium and increasing exports, forging a brighter earnings outlook. The rapid advancement of income, infrastructure growth and spending, coupled with inflation trending lower, means that many emerging markets could have serious potential to deliver competitive returns for investors in 2024 and beyond.
What about China? Investors have been concerned over slowing growth and high levels of debt and with investment in real estate in China floundering in recent years, there’s definite room for improvement. In the first half of 2023, national real estate development investment decreased by 7.9% year-on-year to 5,855 billion yuan and residential investment dropped by 7.3%. In the last quarter of 2023, we saw the tide start to turn and some experts are projecting positive momentum in 2024. Some industries in China such as aviation, healthcare, renewable energy, and high-end manufacturing are showing high growth potential and are open to foreign investment. And then there’s AI - the direction of global AI governance and China’s role in the developing panorama is one to watch and investment opportunities will no doubt become clear as 2024 progresses.
India has gone from strength to strength in 2023 achieving 7-8% economic growth and prospects remain bright, supported by mainly domestic demand. By 2028, India's economy is expected to be bigger than Germany and Japan, making it the third largest globally. With nearly three quarters of its 1.4billion population of working-age, demographics will play a key role in how its potential pans out. Brazil is likely to see growth of roughly 2.5 to 3% in 2024 and GDP growth in Mexico, according to IMF projections, is expected to increase by 2% in 2024. The Mexican economy is expanding thanks to strong construction, auto production and service sectors.
Earnings growth is expected to be higher in emerging markets in 2024 compared to the developed world which makes this sector worth more than a glance when it comes to broadening a portfolio. However optimistic or pessimistic your investment outlook for 2024, the world is always uncertain and economic forecasting difficult, so continuing to maintain a diversified portfolio of investments while staying sharp and open to new investment opportunities as the cycles shift and imbalances are created, is a strategy worth adopting.
Scott McNiven, Accounts Manager
Katie Sykes, Client Engagement & Marketing Manager
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