RSMR has laid out its investment outlook for 2024, and there are reasons to be both optimistic and cautious.
In a commentary note, the fund rating firm’s client engagement manager Katie Sykes and MPS accounts manager Scott McNiven noted the conflicting signals in the global markets.
“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,” they said.
“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 pair acknowledged the prevailing view is that interest rates have peaked as inflation is being brought under control, but the timing on rate cuts remains very uncertain.
The question of whether central banks will wait until damage from higher rates becomes ‘obvious’ or move early enough to avoid a recession is a crucial one.
“Europe is slowing down faster than the US and we’re already seeing signs of a recession,” they noted. “Will this direction of travel take hold, and will we see the same trend in the US in the coming months?”
“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.”
Turning to equities, RSMR urged caution over the ‘Magnificent Seven’ US giants that dominated the stockmarket last year: Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla.
“Coming into 2024, between them, they were worth more than the stock markets of the UK, Japan, France, China, and Canada combined,” they said.
“They now make up roughly 20% of the global stockmarket 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.”
RSMR added that data from Refinitiv shows market shares of the Magnificent Seven fell by $316bn over the first two trading days of 2024.
“Given that they have many similar characteristics, one thing seems likely – if one falls, the domino effect will render them all much less magnificent,” they noted.
The firm pointed to emerging markets as potential bright spot with companies 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.”
China remains a concern, but there are some positive signs. “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,” the RSMR team said.
The firm also noted industries in China such as aviation, healthcare, renewable energy, and high-end manufacturing are showing ‘high growth potential’ and are open to foreign investment.
The AI theme is very much in play in China, with the direction of global AI governance and China’s role in the developing panorama being something to watch.
RSMR also said 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.