Outlook
What could go right in 2024 and beyond?
5 min read 5 Jan 24
In investing, there’s never a shortage of risks to ponder. But while there’s inflation risk, climate change, elections, military conflicts and more to navigate right now, it’s important to focus on the potential for positive events in the future that could impact your investments too. To start the year on a positive note, we’re looking at some of the things that could go well for financial markets in 2024 and beyond. We’re not saying that all these things will happen this year, but we’d be very surprised if the future is all risk and no reward.
Please remember that the value of your investments can go down as well as up so you might not get back the amount you put in. The views expressed in this article should not be taken as a recommendation, advice or forecast.
Artificial Intelligence (AI) Adoption
In 2023, large technology companies, developing AI services, performed well. And as more businesses start to use AI, we could see an increase in efficiencies, improved productivity and higher profit margins across the economy. This could lead to a boost in earnings across a range of sectors. And if earnings grow more than markets anticipate, then equity markets would likely rise.
Weaker US Dollar, Stronger Emerging Markets
The US dollar weakened towards the end of 2023. If this trend continues, it would have a positive impact on other markets, especially those in emerging countries. For example, the price of raw materials (commodities) is usually in dollars, so when the US dollar weakens, it makes raw materials less expensive to buy. The governments and companies of emerging markets also borrow in dollars, so when the dollar weakens, the interest they pay on their debt is lower and more money can be spent elsewhere.
An end to Ukraine-Russia Conflict
The conflict between Russia and Ukraine disrupted the supply of natural gas, leading to soaring energy prices and inflation. If the two sides were able to reach a negotiated settlement, and Russia resumed its gas exports to Europe, things could improve. Lower energy costs would help to bring inflation under control, and allow the European Central Bank to reduce interest rates. This has the potential to support growth in the eurozone economy.
A Radical Shift at the Bank of Japan
Japan has had low interest rates for years in an attempt to stimulate the economy and try to reach its 2% inflation target. Inflation rose in 2023, enabling companies to increase wages and prices. If Japan continues the healthy growth in prices, the Bank of Japan could abandon its low interest rate policies and allow the returns on Japanese government bonds (loans usually issued by a government or company) to rise. This would cause the Japanese Yen to increase in value and boost the purchasing power and the wealth of the Japanese consumers and businesses.
Elections are Everywhere
In 2024, elections are in the calendar for countries that are home to nearly half the world’s population – around 3bn people! These countries include Taiwan, Indonesia, India, the United Kingdom and the United States. These governments could be more inclined to reduce taxes and spend more, in an effort to win over voters. Markets may also anticipate future tax cuts based on who is expected to win – for example, if Donald Trump is re-elected, tax cuts and lighter regulations could be high up on his list of priorities. If this were to happen, it could boost company profits and earnings. Although there’s always a risk that tax cuts and governments that over spend could cause a rise in inflation.
China Stimulus
China’s economy grew in 2023, but sentiment remains very weak. China could surprise the world this year with a large stimulus package aimed at boosting both the economy and the stockmarket. If relations with the US improve it could also have a positive impact on investors’ outlook. US semi-conductor export controls to China are starting to hinder some companies, and investor confidence in Chinese equity markets is poor. China might also consider dialling down the temperature on geopolitical tensions in exchange for agreements on trade which could boost the value of Chinese equities (shares in a company) and bonds. This has the potential to positively impact Asia, emerging markets, and probably even Europe as well.
A Rebound in Real Estate
Real estate equities performed poorly in 2023. Higher interest rates resulted in more money going to pay the interest on loans and inflation caused construction costs to increase, so the cost to maintain buildings was higher. But if interest rates fall, and more companies encourage staff to return to their offices, we could see improvements for the sector over the coming year.
Can the positives ever outweigh the risks?
Risk, and of course volatility, are a natural part of investing. Markets have, and always will, experience periods of uncertainty, when the risks of the present might seem to outweigh the opportunities for future gains. But markets have shown remarkable resilience over time too.
If you can, putting away regular amounts can not only take the guesswork out of investing, but can help you build up your investment over time, meaning if or when current risks subside, and markets react as a result, you’re ready to take advantage.
The easiest way to make regular contributions to your investment is by Direct Debit. Once you’ve set it up, you can rest easy in the knowledge that you’re adding to the pot on a regular basis, and leaving the whole thing to potentially grow steadily over time. So if you stay focused on your goals, and invest what you can, when you can, your future self may very well thank you for it.
Please remember that we’re unable to give financial advice. If you’re unsure about the suitability of an investment please speak to a financial adviser. If you don’t already have one you can find one on our Get financial advice page.