Welcome to the latest edition of Investment Perspectives, Peak views: what lies ahead in 2024? 2023 was a year of positive surprises: despite considerable turbulence, financial markets performed well and the global economy proved more resilient than many expected.
At the start of 2024, Fabiana Fedeli, CIO Equities, Multi Asset and Sustainability, and Jim Leaviss, CIO Fixed Income, along with experts from M&G’s equities, fixed income and private assets teams, provide their insights on the topics likely to drive markets in the year ahead.
For more information on the financial terms used in this article, please consult the glossary.
The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. The views expressed in this document should not be taken as a recommendation, advice or forecast. Past performance is not a guide to future performance. We are unable to give financial advice. If you are unsure about the suitability of your investment, speak to your financial adviser.
Financial markets are at a major crossroads. With inflation coming down and developed market central banks seemingly at the end of their rate hiking cycle, the big question for investors is: where next for equity and bond markets? With views ranging from an economic ‘soft landing’ (the scenario whereby inflation falls without an economic slowdown) to recession, and from ‘higher for longer’ interest rates to rate cuts, the path ahead is uncertain.
Themes for 2024
We have highlighted three core themes – ‘higher for longer’, ‘structural trends’ and ‘active management’ – that we believe could be potential routes through this challenging investment landscape and offer opportunities in 2024 and beyond.
- Higher for longer?
- Structural drivers rather than cyclical trends
- Active management, selectivity and 2024
We believe there is an opportunity in 2024 for investors in government bonds and duration (sensitivity to changes in interest rates), as interest rates may be at their peak and valuations look attractive.
We think the more likely scenario for the next year is not a soft landing, but an economic slowdown followed by central banks cutting interest rates.
Potential concerns for 2024 include the possibility of inflation not being defeated, a wave of government bond supply, and difficulties arising from higher borrowing costs for both companies and governments.
With the rapid rise in interest rates and the depletion of COVID-era household savings, we believe it is logical to expect a further slowdown in demand ahead.
We believe that investors need to differentiate between investing in broad market indices and active stock picking. In 2024, as we saw in 2023, we anticipate that active investors will be able to find attractive pockets of opportunity across the globe.
Amid the current macroeconomic uncertainty, we favour investments underpinned by long-term structural themes rather than those exposed to the fortunes of the economy. We see opportunities in innovation (including Artificial Intelligence), infrastructure, and a low-carbon economy; themes which we believe will be supported by long-term capital, independent of near-term volatility.
The rise of low-cost ‘passive’ investment vehicles, as well as the macroeconomic and market environment since the global financial crisis, have been a challenge to active management strategies.
The best conditions for active managers, in our view, are when the prices of different asset classes move in different directions, and when those differences in return are material.
The recent change of investment ‘regime' represented by higher inflation and rising interest rates has created potential opportunities for active managers who can exploit the elevated dispersion in equity and corporate bond valuations and also distinguish between ‘winners’ and ‘losers’ in a tougher economic environment.
Paths beyond the peak
With interest rates potentially peaking in developed markets, we are arguably nearing the end of the beginning of this economic cycle. What happens next is not clear. Besides the uncertain economic situation, multiple countries are due to hold elections in 2024, most notably the US, but also India, Mexico and South Africa.
According to Bloomberg Economics, voters in countries representing 41% of the world’s population will go to the polls in 2024. Politics and geopolitical issues such as the Israel-Gaza crisis and US-China tensions could potentially add to the complex macroeconomic backdrop and cause further disruption to volatile financial markets.
The investment landscape is challenging currently. But, as selective long-term investors, we believe that risks and market turbulence can create opportunities to identify attractively priced investments. We hope these perspectives provide some clarity on what might lie beyond the peak and highlight potential paths to help you prepare for the year ahead.
Our investment capabilities
The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. The views expressed in this document should not be taken as a recommendation, advice or forecast. Past performance is not a guide to future performance. We are unable to give financial advice. If you are unsure about the suitability of your investment, speak to your financial adviser.
The content of this page reflects M&G’s present opinions reflecting current market conditions. They are subject to change without notice and involve a number of assumptions which may not prove valid. All information included in this page has been written for informational and educational purposes only and does not constitute an offer or solicitation to invest into any security, strategy or investment product. Information given in this document has been obtained from, or based upon, sources believed by us to be reliable and accurate although M&G does not accept liability for the accuracy of the contents.