The global macroeconomic picture is a murky one heading into next year but there are pockets of value for investors to take advantage of if they know where to look, according to experts.
With differing opinions on whether there will be a hard or soft landing, investors will have to tread carefully and choose their themes wisely. Below Trustnet rounds up where global equity investors are backing for 2024.
Amundi: Buy US and Japanese value but be ready to switch
The base case for Monica Defend, head of Amundi Investment Institute, is for a mild recession in the US during the first half of the year, while the UK and eurozone should have moderate growth of around 0.5%.
Emerging markets meanwhile are heading for a “cyclical downturn” amid weakening global demand brought about by the cost-of-living crisis and a pull back from globalisation.
As such, Defend said: “Investors will need to navigate a fragmented economic outlook… which is good news for diversification and multi-asset portfolios.”
She suggested investors should “stay defensive” and “focus on dividend sustainability, quality and low volatility”, while favouring value funds in the US and Japan at present. Savers should be ready to switch to Europe, emerging markets and smaller companies, however, if the Federal Reserve starts to cut rates.
Jupiter: Europe, China and the UK all look cheap
Kiran Nandra, head of equities at Jupiter Asset Management, noted that this year should be a positive one for active managers, with a fragmented world allowing for more opportunities.
“Purely from a valuation perspective, we have a divergent world, and this could provide benefits for value or systematic investors,” she said.
In particular, she highlighted Europe as a market that is “cheap on a historical basis and is home to global companies that are exposed to important secular growth opportunities”, pointing to computing power and semiconductors, the clean energy transition, biotechnology and consumer affluence and luxury products as key themes to watch in the region.
Additionally, although China’s rebound from Covid has been disappointing thus far, it “may offer some specialist opportunities” while Japan and India – which both outperformed in 2023 – “may have further to run”.
“UK equities are remarkably inexpensive on a historic basis, yet this market also is home to world-leading companies that are dependent on overseas markets rather than the domestic one,” she concluded.
Fidelity: Look at the US outside the ‘Magnificent Seven’
Markets are currently favouring a soft landing scenario, although it is likely that a recession is coming, according to Andrew McCaffery, global chief investment officer at Fidelity International, but there are alternative endings.
Alongside a cyclical recession, to which he gives a probability of 60% next year, a more severe balance sheet recession has a 10% probability. A benign soft landing scenario (20%) and a world where there is no landing in 2024 at all (10%) could also take place.
However, looking at his most likely outcome, McCaffrey said: “As the cyclical recession outcome takes hold later in 2024, there would still be good opportunities for investors who are discerning about sectors and geographies.
“Parts of the US equity universe would be especially well positioned. In particular, mid-cap stocks look attractive along with much of the S&P 500 that have not shared the incredible performance this year of the ‘Magnificent Seven’ stocks.”
In the emerging market region China offers value, he argued, while India and Indonesia are markets with good defensive qualities that are less tied to the global cycle.
Invesco: Factors will be less dominant – it’s about stock picking
Stephanie Butcher, co-head of investments at Invesco, noted that company fundamentals are likely to become more important in terms of performance next year.
“While rates may moderate from current levels, the era of near zero rates is over and a higher cost of capital is a factor that governments, corporates and households will need to contend with,” she said.
“We expect there’ll be more inflation tension in the system from fiscal spend on the energy transition and commodity costs. Furthermore, complex geopolitics are putting more ‘grit’ in the system of supply chains and shifting demographics in China will have implications for global labour costs.”
With rates higher, inflation persistent and geopolitics unstable, the coming year will be very different to those enjoyed after the financial crisis and investors will need to adapt accordingly.
“The previous era made asset allocation relatively simple – US, tech, growth factors. From here we expect factors to be less dominant and stock picking opportunities more diverse,” she said.
Mirabaud: Stocks in cyclical sectors should prove resilient
At a sector level, Anu Narula, head of global equities at Mirabaud Asset Management, was confident on companies that have proven resilient and have not marked down their growth forecasts, but have been priced for a tough 12 months.
“We believe many of these names have more structural drivers than cyclical ones, even if there is some element of cyclicality in their models, meaning they could well surprise to the upside as we progress through 2024,” he said.
These include companies that fit into the ‘millennial consumer’ bucket, as well as automation stocks, health and wellbeing companies and artificial intelligence businesses not named Nvidia.
“We also expect onshoring to remain a major tailwind going into 2024. The US has approved a $1.2trn stimulus package in the form of the Infrastructure Bill. Some $300bn has already been ear marked and should provide support to many industrial and construction companies and those providing consulting to these projects,” he said.
“We saw some gains on stocks in these areas earlier this year, but these have since consolidated and we expect to see a significant step up in activity by the second half of 2024.”