Thriving in 2024 :
THE BIG THINK :
Thriving in 2024 :
The market themes you need to know
By Luigi Marinus , PPS Portfolio Manager
When considering investments , it is always important to look ahead and assess the market themes that are likely to feature during the coming months . Global inflation , interest rates , a possible US recession and the reopening of China were identified as essential themes at the beginning of last year and they continue to remain significant . Additionally , a hot new topic has emerged – artificial intelligence ( AI ) and its practical implementation .
HIGH INFLATION
Post the COVID-19 lockdown , the world has again been reminded of the influence of high inflation after many years of benign inflation . We have gone through a period where inflation was expected to be transitory to a realisation that central banks needed to act swiftly to get inflation back to reasonable levels . This saw roughly 500 basis points of interest rate increases in both the US and South Africa over a very short period in the hope that inflation would return to respective target levels .
While inflation has moderated from the peak levels , target levels have yet to be reached , fuelling the current debate around what subsequent moves from global central banks should be . Should interest rates be further increased to reduce inflation to the target level or have inflation expectations moderated enough for interest rate cuts to start ?
The previously hawkish stance of central bankers has turned more dovish during the last quarter of 2023 , which has led to markets starting to price in the likelihood of rate cuts in 2024 . This positively affected overall sentiment , which in turn saw stock prices and bond yields rally . Therefore , the temptation is to increase the allocation to growth assets in portfolios in anticipation of the peak in interest rates .
CAUTIOUSLY OPTIMISTIC ASSET STRATEGY
As always , central bankers must strike a delicate balance between inflation targeting , influencing GDP growth and affecting currency exchange rates . Cutting short-term interest rates is likely to be positive for stocks and bonds . Still , any upside surprise to inflation may force central banks to pause a cutting cycle and continue increasing interest rates , which would have the opposite effect on asset prices . Cautiously optimistic , therefore , remains the appropriate approach when applied to asset allocation .
THE LIKELIHOOD OF A US RECESSION
The debate regarding a US recession has improved . Financial markets had anticipated a severe economic downturn or hard landing a year ago . However , the US economy has proven resilient , with unemployment remaining low . As a result , the current view is that a mild recession or soft landing is more likely . A US recession is important to take note of as , historically , equities have performed poorly during these times . Emerging markets asset prices have also declined during US recessions and cash
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