This being the last Quick Bite of 2023, my thoughts naturally go to what to expect in 2024. Regular readers will not be surprised that I am optimistic. I expect next year will deliver solid returns for investors.
First, a quick recap of some of the stories that surprised me over the last year:
- Economic growth was generally better than expected. This was particularly true for the US. Lots of commentators anticipated a recession, convinced that the rate increases delivered by the US Federal Reserve (Fed) and other central banks would crush the economy, and cause unemployment to soar, and markets to fall. The inverted yield curve was a harbinger of the recession that never arrived – but that may of course still occur. Yet in 2023, it didn’t happen.
- Indeed, labour markets in both the US and Australia have remained remarkably robust, surprisingly so.
- Many of us expected Western Europe would experience a deep recession because of the spike in energy costs following the Russian invasion of Ukraine and boycotts of Russian oil and gas exports. Again, the worst consequences were avoided, and the price of oil has been on the slide. US oil production has been incredibly strong, and it is now far and away the world’s largest oil producer.
- Inflation has come down faster than many anticipated, particularly in Europe, and particularly for goods; services are costing a lot more, and remain a problem. Nevertheless, global bond markets are suggesting that interest rates are now on hold, with the next move in rates being down rather than up. Markets are forecasting rates could be coming off as early as mid-2024, but that might turn out to be a bit too optimistic.
- Geopolitical tensions were plentiful during the year, with the war in Ukraine the main point of focus until the last 2 months when Israel and Gaza took over. Tensions around Taiwan remain on the watchlist, and we should not ignore major unrest in north and central Africa where radical Islamists and coup d’etats have created a dangerous region of lawlessness in the Sahel.
- China’s re-opening following its severe lockdown during the pandemic failed to deliver the bounce-back many thought likely. China has been hit by structural problems in its property sector, and by the withdrawal of foreign investment, two factors that appear likely to continue through 2024.
- Lastly, the Artificial Intelligence (AI) driven boom in the Magnificent 7 mega-cap US tech stocks was certainly a surprise. Those stocks went from expensive to very expensive during the year, and we would not expect that to be repeated. Indeed, these stocks may well underperform as other sectors take over the leadership baton.
The New Year…
- 2024 is likely to see positive returns helped by falling rates in the latter half of the year, with the risk of a shallow recession or soft landing.
- Expect the Reserve Bank of Australia (RBA) cash rate to fall to around 3.5% – 3.75% by the end of 2024, and the AUD to rise to closer to USD 0.70.
- Commodity prices will probably be a mixed bag, with green transition metals (like lithium and copper) recovering from sold-off levels, and oil remaining volatile. I expect gold to finally break through USD 2,000.
- Australian residential property prices could see profit-taking in 2024 as high mortgage rates bite, following strong price rises in 2023.
- The Australian economy has been supported by strong immigration, rebounding tourism and substantial construction spending. These will endure and are helping the economy deal with higher rates. The labour market remains strong and households still have plenty of excess savings. This points to another solid year for the economy unless there are unexpected developments offshore or the RBA is too aggressive.
- Key things we’ll be keeping a beady eye on: inflation; interest rates; recession risk; China’s economy; the US presidential election; and the Australian consumer.
- I’ll take this opportunity to wish all our readers a very Happy New Year, and I hope to reconnect with you in 2024!
Warm regards, Paul Zwi and the Clime team.
Quick Bites will pause over the Christmas break to resume from the 15th of January 2024.
Disclaimer: Clime Asset Management Pty Limited | AFSL 221146 | ABN 72 098 420 770. The information provided in this post is intended for general use only. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information contained therein. Please consider the relevant disclosure document/s before investing in one of our products. Investment in securities and other financial products involves risk. An investment in a financial product may have the potential for capital growth and income but may also carry the risk that the total return on the investment may be less than the amount contributed directly by the investor. Investors risk losing some or all of their capital invested. Past performance of financial products is not a reliable indicator of future performance or returns.
