Stepping into the new year, it’s unlikely we have escaped the choppy waters felt by financial markets in 2023. In fact, many suggest that we are yet to properly experience the implications of financial events that have already taken place or are ongoing – namely, the extended impact of record-high inflation and interest rates; the dust has yet to settle. What we are promised is a “mixed picture,” which means both opportunity and continued struggles. It’s not possible to predict with 100% uncertainty how the year will unfold, however, we turn to some of the reputable authorities in the industry for some good indicators, which we have rounded up and shared in this blog article.
Disclaimer: please bear in mind that even major institutions make predictions that do not always hit the mark. It is advised that you do your own research and speak to the professionals before making any significant investing moves.
Disclaimer: please bear in mind that even major institutions make predictions that do not always hit the mark. It is advised that you do your own research and speak to the professionals before making any significant investing moves.
Market dynamics and strategic considerations for Investing in 2024:
Having an awareness of the state of the economies helps prepare you financially. Stay up-to-date on the activities and highlights from the latest quarter by reading this Quarterly Economic Review. We consider key factors such as inflation, interest rates, asset classes, bonds and equities, as well as general growth and employment.
The 3rd quarter covers July, August and September and we reflect on what happened in The Markets. As we near the end of 2024, this retrospective considers both the global broader impact and South African headlines locally.
The 3rd quarter covers July, August and September and we reflect on what happened in The Markets. As we near the end of 2024, this retrospective considers both the global broader impact and South African headlines locally.
Economic Snapshot
Inflation remains high, especially food inflation. While this differs according to location, the trend shows it to be higher in developing economies. Any upcoming relief is more likely to be felt in the second half of the year, followed by lower interest rates (spurred on faster by inflationary pressures such as global growth slowing down). There is an anticipation that the world’s 20 major central banks will implement a cumulative reduction of approximately 35% points to support the global economy, again maybe this will not occur as many are warning.
What is the “Soft Landing” Dilemma?
The recipe of high interest rates, high inflation, and slowing global GDP often point towards a recession. However, the current stance is that we can pursue a “soft landing” – which is the gradual slowdown of economic growth, avoiding a recession or economic downturn. Though this seems elusive, there is a notable way in which the investing world has already started behaving as if it will happen. This phenomenon may do some of the work by stimulating the economy. However, it can also lead to consequences like overvalued stocks. Furthermore, the world of geopolitics is poised for a major reshuffle, which could at any moment throw a “soft landing” out of the window.
Geopolitics and Economic Restructuring
The world stands on the brink of significant restructuring, with key focus on the Middle East conflict, Taiwan tensions, the Russia/Ukraine conflict, and a multitude of elections reshaping power dynamics (e.g. in the United States and South Africa). Elections can create uncertainty in the lead-up, causing potential fluctuations in stock prices, currency values, and commodity prices.
As an illustration of the reconfiguration of power lines, China’s economic slowdown signals a reevaluation of its status as an economic superpower, which is particularly significant for global investors and emerging markets. All these conflicts and world events act as inflationary pressures.
As an illustration of the reconfiguration of power lines, China’s economic slowdown signals a reevaluation of its status as an economic superpower, which is particularly significant for global investors and emerging markets. All these conflicts and world events act as inflationary pressures.
Investing Strategies
Sectors and Asset Classes
Analysts have different ideas about how to navigate the coming year. What seems clear is that it’s a good time to remember your sound investing principles, such as taking a long-term approach (at least 7 years) when investing in stocks. Search for recession-proof options and remember; Diversification, Diversification, Diversification. Think global equities, fixed income, and well-curated hedged strategies.
Luckily, the coming year will be good for both stocks and bonds, but do your research by returning to indicators such as earnings, revenue, growth prospects (and other financial metrics) before investing in either.
Luckily, the coming year will be good for both stocks and bonds, but do your research by returning to indicators such as earnings, revenue, growth prospects (and other financial metrics) before investing in either.
Sectoral Insights & Emerging Trends
One of the star stock performers currently is Japanese stocks, which experienced a strong beginning in 2024 and are maintaining a rapid rise.
Looking back at last year’s darlings of the financial world, tech stocks such as the “Magnificent Seven” (Microsoft, Amazon, Google parent Alphabet, Tesla, Facebook, Nvidia and Apple) continue to shape market performance. However, the jury is out whether Big Tech can sustain its blazing trajectory.
While green energy and digital infrastructure are exciting investing spaces that are responsive to the times, challenges persist in developing countries as they experience capital flight and reduced foreign investment, exacerbated by high debt and rising inflation.
Looking back at last year’s darlings of the financial world, tech stocks such as the “Magnificent Seven” (Microsoft, Amazon, Google parent Alphabet, Tesla, Facebook, Nvidia and Apple) continue to shape market performance. However, the jury is out whether Big Tech can sustain its blazing trajectory.
While green energy and digital infrastructure are exciting investing spaces that are responsive to the times, challenges persist in developing countries as they experience capital flight and reduced foreign investment, exacerbated by high debt and rising inflation.
Investment Insights for 2024
Looking at Stocks
While the stock market has been on the back foot for the last two years, the tides have now changed. The anticipated easing of inflation and interest rates has meant that stocks are entering a bull market, with the S & P 500 having already entered one. We’re seeing a general upward movement across a range of stocks, and global equities have the potential to achieve new record highs.
Some advise to focus on value stocks; equities perceived to be undervalued by the market, as well as small-caps. Specific sectors such as communications, real estate, and utilities also look promising. On the other hand, dominance of large technology companies in the stock market may decrease in 2024.
In a time of over and under valuation, it is particularly important to give preference to companies that have robust financial health, as indicated by strong balance sheets and low leverage.
Beyond the excitement around Japanese stocks, Chinese technology stocks have potential for positive performance. When it comes to the AI frenzy, consider focusing on companies that are not directly involved in developing AI technology, but rather utilise AI capabilities in their products or services.
Some advise to focus on value stocks; equities perceived to be undervalued by the market, as well as small-caps. Specific sectors such as communications, real estate, and utilities also look promising. On the other hand, dominance of large technology companies in the stock market may decrease in 2024.
In a time of over and under valuation, it is particularly important to give preference to companies that have robust financial health, as indicated by strong balance sheets and low leverage.
Beyond the excitement around Japanese stocks, Chinese technology stocks have potential for positive performance. When it comes to the AI frenzy, consider focusing on companies that are not directly involved in developing AI technology, but rather utilise AI capabilities in their products or services.
Backing Bonds
Some are saying that it is the year of the bond, in contrast to what we’ve seen over the past three years. This is both because yields seem to be making a return to a long-term norm, and because yields offered by bonds with high credit quality are their highest in 15 years. Some are even of the opinion that bonds offer better value or are priced more favourably compared to the cap-weighted equity market.
Many anticipate interest rates to come down with inflation at some point; good for bonds because they move inversely to interest rates. Bonds/fixed income securities are good for stability and predictable returns, so it is a strategic move to secure interest rates offered by high-quality fixed-income investments. They can also act as a hedge against inflation, preserving the real value of invested capital.
*Caution: not all analysts are so positive about bonds, so consider Short-Dated Bonds which offer a level of stability and are less prone to significant price fluctuations.
Many anticipate interest rates to come down with inflation at some point; good for bonds because they move inversely to interest rates. Bonds/fixed income securities are good for stability and predictable returns, so it is a strategic move to secure interest rates offered by high-quality fixed-income investments. They can also act as a hedge against inflation, preserving the real value of invested capital.
*Caution: not all analysts are so positive about bonds, so consider Short-Dated Bonds which offer a level of stability and are less prone to significant price fluctuations.
What is ‘The 3D Reset’?
This year, it is being said that central bank reserve management will be shaped by three Ds:
- De-dollarization involves a gradual reduction in reliance on the US dollar, as seen in initiatives like the Brics bloc’s exploration of a common currency.
- Diversification emphasises the shift away from dollar holdings towards assets such as gold and traditional government bonds during periods of market turbulence.
- Deployment signifies the use of foreign exchange reserves to defend currencies, contributing to a decline in global international reserve assets.
Alternative Investments:
Alternative investments are investment opportunities beyond cash, bonds, and stocks. These show their relevance especially in times of economic uncertainty. According to Forbes, young investors between 21 and 42 believe that above average returns can’t be achieved through equities and bonds only. Three examples of alternative investments are gold, direct lending, and decarbonization.
Commodities
The long-term bull cycle in commodities endures post-pandemic, but challenges loom.
Geopolitics along trade routes in the ocean impact commodity prices. For instance, oil prices surged in the initial weeks of 2024 due to missile and drone strikes in the Red Sea, causing uncertainty in the international oil market.
Gold and silver are forecasted to outperform in the metals sector, reaching new nominal highs in 2024.
Geopolitics along trade routes in the ocean impact commodity prices. For instance, oil prices surged in the initial weeks of 2024 due to missile and drone strikes in the Red Sea, causing uncertainty in the international oil market.
Gold and silver are forecasted to outperform in the metals sector, reaching new nominal highs in 2024.
Conclusion
This uncertainty requires more risk-averse investing and the use of “buffers” against sudden economic downturns, as well as an active management of your portfolio. Speak to the professionals today to get help with your investing, contact TVC Wealth and Health Managers.
ENDS
Contact TVC Wealth and Health Managers for advice today for personalised advice. We can advise you on how best to invest your money, run through the numbers with you, and match your financial goals with your lifestyle.
ENDS
Contact TVC Wealth and Health Managers for advice today for personalised advice. We can advise you on how best to invest your money, run through the numbers with you, and match your financial goals with your lifestyle.
