Q&A: 2024 and beyond – economics and geopolitics loom large

Q&A January 2024

• Let’s kick off with one of the good news stories of the last year – the moderation of inflation after it hit multi-decade highs. Will inflation behave itself in 2024 and revert to pre-2022 levels and to what extent will central banks be able to reduce rates?

  AP: I believe US inflation will fall close to 2% in the first half of 2024. This will allow the Fed to cut interest rates by about one percentage point (100bps) for this year. The market is pricing in 160bps for 2024, with most of it frontloaded. The big unknown is the US jobs market – unemployment is running at 3.6% which means that if the Fed cuts interest rates too quickly it will reignite inflation. Fed chief Jerome Powell is aware of the risk and I believe he will err on the side of caution.

  OM: There are several upside risks to inflation because of the Middle East conflict, and issues in the South China Sea and the Red Sea. Disruptions to supply chains and the risk of elevated Brent crude prices present an upside risk to inflation. This is something central banks will keep in the back of their minds when making interest rate decisions and crafting economic outlooks.

  CH: I suspect we’ll see continuing declines in core inflation, while headline inflation remains somewhat sticky. Central banks will likely focus on core, rather than headline, so I suspect we are in for sizeable rate cuts over the year.

  ZD: The direction for inflation is downward globally, the question is the velocity of the decline in inflation. Geopolitical developments are a new challenge as they impact commodity prices. As such, I see global inflation only getting back to pre-2022 levels beyond 2024.

  While most central bankers have pivoted from a restrictive stance and while I expect rate cuts this year, the slow decline in inflation will see fewer rate cuts than what is widely expected by the market.

  BS: Up until a few weeks ago the inflation outlook was looking promising. The Houthi actions in the Red Sea have muddied that outlook slightly in the short term with shipping costs having already moved sharply higher. Hopefully, this situation resolves itself. Whether this is sufficient to disturb the improving trend remains to be seen.

  AB: I expect US inflation to continue to trend lower but settle at levels that are higher than before the pandemic (it likely won’t be at the target of 2%) as regionalisation impacts the costs of production along supply chains. Global prices will likely continue to trend lower but remain sticky, affected by volatility in the oil price. Also, the Middle East conflict and other geopolitical tensions could further result in an oil price blowout (we are already seeing companies not going via the Suez Canal to transport goods). Therefore, inflation could remain elevated but revert to its mean.

  South African inflation will likely correlate with US inflation and is therefore likely to be within the target range of 3% to 6%, however, it will probably still be elevated, between 5.1% and 5.7%.

  NU: I think inflation will be sticky and I don’t expect material declines in the short term. In the long term, a lot will depend on the continued impact of technology and whether it can offset some otherwise inflationary pressures.

  JW: Global inflation will be well-behaved this year, but central banks will not cut as far as markets are saying unless GDP numbers are much weaker.

• Linked to this, what’s your outlook for growth in the US? Will there be a recession or a soft landing?

  OM: Growth will probably moderate in 2024 from current levels. However, the lagged effect of high interest rates may have a similarly lagged impact on consumption. Consumption makes up about 70% of US GDP and therefore any moderation in consumption can have a material impact on growth in the US.

  ZD: Recent economic data in the US have surprised on the upside and suggest the US economy is resilient. The strength of the economy is best conveyed by the unemployment rate, which has remained below 4% for the entirety of the Fed rate hike cycle. The market consensus is increasingly embracing the soft-landing narrative. The lagged effect of the historic interest rate increases will make its way into the system this year, excess savings are declining, and credit card debts are higher, and against this generally unsupportive backdrop, I believe the US economy will slow this year. However, the firm labour market and declining inflation will boost consumer spend and see the US avert a recession, I believe.

  AB: The US demonstrated significant economic resilience during 2023, however, this is likely to fade in 2024. This could be due to there being signs that the labour market is starting to soften, with the most recent unemployment number staying flat at 3.7% in December, but steadily from around 3.5% over the first half of 2023. Unemployment could breach 4%.

  I believe we will see a soft landing because there’s likely to have a slightly below-trend slowdown across major economies, with no major shocks to knock markets off track. The decision to keep interest rates higher for longer would likely bring inflation to a level at which central banks are comfortable. This would then allow them to pivot and cut interest rates, easing pressure.

  AP: US growth will soften and go into a mild recession given that the fiscal thrust is turning negative and past rate hikes will continue to have an impact on consumers while the hot jobs market will keep companies from slashing costs, which in turn will eat into their earnings as margins fall. Furthermore,  the Democrats spent money on the CHIPS Act and Inflation Reduction Act last year and this added stimulus when the economy did not need it. This will not be repeated as the Republicans will likely not allow the Democrats to spend on the fiscal side even if the economy falls into recession.

  BS: I am somewhere between recession and a soft landing, sitting on the fence so to speak. While interest rates should have hopefully peaked in this cycle, I am not certain whether the improved outlook for rates will be sufficient to lift confidence enough for the US economy to not hit stall speed.

  CH: I think the knock-on effect of the rate hikes of the last two years will be hard to avoid. The net result is we are probably due a recession in the US.

  JW: Probably no recession. But no boom either.

  NU: One can’t dismiss the possibility of a soft landing but recession is the greater likelihood. I expect any recession to be shallow.

• China disappointed in 2023, despite the post-Covid reopening? Can China get its spluttering growth engine going in 2024? And what does this mean for the rest of the world?

  BS: China does look interesting and does appeal to me as a contrarian, particularly from a valuation perspective.  There are two problems though, one is the infrastructure growth-driven story running out of runway, at least in the short term. The other is government policy which scares western investors. The second is solvable and there has been some limited evidence of the awareness of the impact of this policy, but not sufficiently in my opinion.

  OM: The key driver of Chinese growth will be the extent to which the Chinese government provides stimulus to the economy. This is particularly important as far as diminishing asset values (particularly property prices) have impacted wealth in China. Moves by Chinese authorities to catalyse property prices and invest in infrastructure projects would be key, although a consumer-centric stimulus would also be a positive.

  ZD: A significant impulse to the global economy in early 2023 came from China’s reopening. China could produce an impulse again this year to lift global growth, I believe. China ramped up stimulus last year to re-engineer growth, which appears to be gaining traction. There are some signs already of a spillover from Chinese activity into a few commodity-exporting emerging markets.

  AP: China is showing signs of a mild upswing from very depressed levels, however, this will likely be a short cyclical recovery, as the deflationary wave following the housing bubble will continue to constrain the government from stimulating too much for fear of reflating the bubble. China will be facing deflationary forces that could last for 15 years.

  AB: In 2024 China will still be carrying a lot of legacy issues such as excess leveraging and a property sector that has taken its time approaching a plateau or a stable setting. We are currently starting to see signs of the end of de-stocking in China, household consumption has been resilient and while property sector is less of a drag today (year-on-year is now low single digits).

  Where the market could be surprised on the upside is the export sector (which needs a weaker currency) and that’s where the stimulus will come from and could help counter deflationary tendencies (they are still importing a lot of commodities).

  We also need to factor in Taiwanese relations this year and this could add further geopolitical risk. Most likely a slow recovery in economic activity in China will continue into 2024 as industrial activity continues its gradual recovery. The credit cycle would also suggest weak economic activity into 2024. Ultimately, this will weigh on global activity and commodity prices. So we are likely to see China’s economy grow by 4.5% in 2024, in my opinion.

  On the commodity side, we will likely see industrial metals prices stabilise in 2024, after falling from 2022 levels. Non-OPEC oil supply can offset the reduced OPEC supply (assuming no Middle East escalation). However, if the conflict spreads to the Persian Gulf we could see oil prices spike.

  CH: There are early signs that stimulus attempts are gaining traction in China. I think it is quite likely that Chinese growth will reaccelerate over the coming six months, even as global growth continues to slow.

  JW: I can’t see China accelerating dramatically, at least not without major government stimulus, which itself would be unsustainable. It’s not great for the likes of Germany, but it might help to keep global inflation lower than otherwise.

  NU: China is likely to take longer to recover than the general consensus, in my view, and will continue to be a drag on global growth.

• What’s your view on Europe (growth and rates)?

  AP: European growth has been tepid in the past year given that the European Central Bank (ECB) hiked interest rates to keep up with the Fed and in reaction to the energy price shock of last year. Growth has been picking up and is surprising on the upside now, while the cyclical Chinese upswing is helping. However, it will be difficult for Europe to stay standing if the US slows down rapidly. The good news is that the job market in Europe is still very weak and once Europe experiences a growth slowdown the ECB will be able to cut interest rates quickly in response, without the fear of reigniting inflation.

  CH: Europe is likely to see growth of around 1% over the coming year. Falling core inflation should allow the ECB to cut rates by around 100bps over the year.

  OM: European growth is expected to remain low in 2024 although the worst of the inflation crisis has passed. Improving inflation and the scope for interest rate cuts would have a material impact on discretionary income and consumer expenditure in Europe, which can prop up GDP growth.

  AB: Europe is already showing signs of weaker growth vs US (inventory numbers that have deteriorated over the last six months in Europe). Growth should follow that of the US (weaker labour market etc). Inflation could remain elevated but should revert to its mean.

  BS: I expect muted growth with risks to the downside. I expect rate cuts before the second quarter.

  NU: Given how negative expectations are, Europe may surprise on the upside – rates however will likely be sticky as inflation remains persistent.

• Turning to geopolitics, how do you see things panning out in the different hot spots around the world, such as Ukraine and the Middle East? Should we be factoring in other new conflicts?

  NU: Hopefully there’ll be no additional conflicts and the existing hotspots resolve themselves. That would be the most likely – the problem however remains the consequences if this is not the case and material expansions in conflict do occur.

  JW: I think the best stance from an investment point of view is just to assume that these conflicts drag on with no resolution, but also no major escalation. Hedges against the tail risks of this include gold, some sort of leveraged oil structured product and US dollar cash.

  ZD: We start the year with two wars and no resolution in sight for either, while there are increasing risks of escalation in the Middle East. Geopolitics has become a persistent and structural market risk that we should pay close attention to, and I see tensions increasing in 2024. Such an environment may bring to the surface other simmering conflicts elsewhere, including the tensions between China and Taiwan. A different government in the US post the 2024 elections could come with a different foreign policy resulting in a different set of outcomes.

  AB: Yes – any escalation in the Middle East (specifically EU and US intervention in targeted bombing of the Houthis etc) could result in a regional war. This could then potentially result in oil price spikes, sanctions, etc.

  BS: I think the risk of new conflicts is increasing. US and UK involvement in the Middle East could embolden North Korea and possibly China. I am surprised at the limited market reaction to the existing conflicts and the impact they could have on global growth if they escalate.

  CH: It seems that de-escalation is some way off at this point. I don’t think we can have any conviction in a view on other wars at this point except to say it is likely to be a volatile year.

  AP: We are facing possible maritime war in three different hot spots: the Black Sea, the Red Sea and the Baltic and North Seas. We might see a cease-fire with Russia/Ukraine. The big unknown currently is the Middle East, with Iran behind the funding of the much of unrest in the Middle East. This is the area to watch in my view – Iran and the US are keeping calm at the moment, but the situation could escalate and cause shocks.

  OM: Various elections globally present upside risks to increasing geopolitical fragmentation. Therefore, we should not rule out the possibility of other conflicts. Elections in the US will have significant implications for global geopolitical alignment, as well as the outcomes of elections in Iran, Pakistan, Ukraine, Russia and India.

• Will China be a source of global tension in 2024, or will China’s relationship with the West start to thaw?

  AP: China will keep the pressure on Taiwan, but I do not believe it wants to escalate tensions with the West. Domestic problems will keep it focused internally and 2024 should see things remaining calm on the international front.

  OM: China has made its views clear on its territorial rights in the South China Sea and the region more broadly. The US is facing multiple issues at home and abroad (Middle East and Eastern Europe), which sets the stage for China to take advantage of the inability of the US to fight battles on multiple fronts.

  BS: I think China is very worried about its economy and not that likely to cause any further tension. I think the story would have been different if their economy was in a better position.

  CH: I think it hinges somewhat on the outcome of the US election.

• Elections loom large in 2024, but the key one is the US presidential election in November. How do you see US economic and foreign policy developing this year, as we approach the elections, particularly as Donald Trump ramps up his campaign and fights various court cases against him?

  OM: The US election, as mentioned above, will have significant implications for geopolitical alignments. However, it is more of a 2025 story. Former President Trump is expected to materially deviate from the US policy of the last four years under Biden, eg a likely repeal of the Inflation Reduction Act and a changing posture on Ukraine, Iran and China. Trump appears to have overwhelming support in the Republican Party and is expected to cruise through the Republican nomination process.

  ZD: Trump is well on his way to becoming the Republican presidential nominee. The court cases have reenergised his base and those Republicans who believed the 2020 elections were not legitimate. Barring some unforeseen turn of events, the presidential race appears to be a rematch between Biden and Trump, and the probability of a Trump presidency is high.  A Trump presidency will advocate for talks between Russia/Ukraine (Trump claimed he would end the war “in one day”). Given Trump’s limited interest in foreign policy, we do not have a clear view of changes to the Middle East foreign policy.

  CH: At this point, it looks pretty close between Trump and Biden. The outlook for policy is uncertain at this point but also, given the age of the candidates and the possibility of either not serving a full term, policy uncertainty is likely to remain elevated for some time.

  AP: This is going to be a nasty election year. Trump will probably be the Republican candidate despite his legal problems. Biden, whose biggest negative is his age, and a very low approval rating currently, will also face headwinds if the economy weakens.

  Lower inflation and the strong jobs market could help him though, but the fiscal side is going to be a hot topic in this year with shutdowns looming once again.

• Do you see the populists/extremists gaining more ground in elections in 2024?

  AB: Yes – more than 40 nations are casting their vote this year. We have already seen a shift in right-wing rhetoric (Germany, Netherlands, US, etc). In addition, there is potential for the Middle East conflict to escalate further, resulting in Western intervention.

  BS: The world has become very polarised in the past few years and I suspect politicians will leverage this.

  CH: That does appear to be the trend over the past few years, but I’m not at all sure it will continue.

  JW: The only one that matters is the US, which could go either way. Oddly, Trump is seen as so extreme that he might even surprise us positively (or is that wishful thinking?). Both main parties in the UK are centrist. Modi is a shoo-in for India. I don’t like his increasing “strong man” tendencies, but he gets a free pass as long as he is not pro-China and the stock market keeps going up.

  AP: Populism is currently high, but I do not think it will increase much further from the current elevated levels. Trump will probably use that as his election platform.

• Based on all of the above, what are the implications for the different asset classes – equities, bonds, currencies and commodities?

  JW: Could be a relatively dull year for all. I think that that 4% for the 10-year US Treasury is fair value at best if there’s no recession. Equities can grow in line with earnings and will benefit from lower short rates and the anticipation of a recovery in 2025. Everyone wants to sell the US dollar but is too scared because of its safe haven benefits. I like the long-term commodity story because I think inflation will be structurally higher, but it’s impossible to call in the short term.

  OM: Positive equities, but I’d look to hedge risk with bonds … bullish emerging market currencies due to significant US dollar strength in 2023. Commodities will be a function of any China stimulus.

  ZD: Equities are starting the year off a high base given the strong rally in the tail end of 2023, following the Fed’s pivot. Whether the Fed cuts rates because of declining inflation or a material economic slowdown will be a determinant of the direction of travel for risk assets. The latter will continue the narrow rally of technology stocks (the “magnificent 7”) seen last year boosted by the AI theme, while the former will produce a goldilocks scenario and broaden the rally to other parts of the market.

  Selective commodities will do well in high geopolitical risk environments, including precious metals. The broader commodities group will be challenged in the short term, while a Chinese economic recovery will provide a boost to some metals.

  AB: Where inflation will end up in 2024 and how much growth will deteriorate are the big questions that will drive returns across asset classes. We also need to see a normalisation of the yield curve. We currently have three scenarios in the market:

   

  Hard landing/recession (highly unlikely): Lots of interest rate hikes have weighed on economic activity that will result in a global recession in the market. This will result in a steepening of the yield curve as central banks need to cut rates fast and aggressively.

   

  Soft landing (highly likely): Inflation to revert to its mean but growth doesn’t decelerate as much. This would allow the Fed to cut rates preventatively and drive the market to a soft landing.

   

  A 1970s-type scenario (we do not want this): A situation where inflation drops to around 3% or in the high twos (not reaching target) with a rebound in the second half of the year. This implies that even if we see a recession or a significant slowdown in the economy, central bankers can’t back off because the inflation genie has not been put back in the bottle. We will then see a continuous flattening of the yield curve because the Fed won’t be able to cut at all or not as much as hoped.

   

  Fixed income is likely to still outperform overall, in my opinion, in a soft landing or recession scenario. A soft landing scenario should present a benign environment for nominal bonds. The longer-duration paper would offer the best results thanks to the reduction of headline interest rates by the end of the year. High-yield bonds would also do well in a good environment for risk assets thanks to a solid performance on growth.

   

  In a hard landing scenario, nominal bonds should experience a more aggressive fall in both the long- and the short-end yields. High-yield bond spreads would likely blow out as there are more defaults (there’s usually a six-month lag after a recession call).

   

  (As an aside, over the last 40 years, US Treasuries have only had six years of negative returns, while German Bunds have only had four years of negative returns in that period. Both had their worst years in 2022.)

   

  BS: Markets are forward-looking and generally price in everything commentators are already actively discussing. It’s the events that no one is expecting that create volatility. While growth may slow, we need to keep in mind the improved interest rate outlook. While there is a lot to worry about right now, I always remind myself of the adage, ‘Bull markets climb a wall of worry’. Short term I am neutral on global equities, bullish on bonds, and bullish on the US dollar. I am bullish on commodities in the medium to longer term.

  NU: In general I’m cautious around all asset classes but opportunities are likely to present themselves during the year. The possibility of a soft landing and material impacts from technology suggest one should not be too bearish going into 2024.

  CH: The prevailing theme above is uncertainty – the outlooks for monetary policy, geopolitics and GDP growth all appear unclear at this point. In that context, it is strange that global equities have held up as well as they have. A greater appreciation of the risks ahead will likely coincide with weaker equities, weaker commodities outside of gold, and a stronger US dollar.

  AP: Bonds are still my preferred asset for my portfolios. Equities might continue to rally in the first quarter, but I am allocating new money to equities. Commodities will stay under pressure until global growth sees a likely synchronised upswing in 2025.

• Turning to South Africa, what does all the above imply for the South African economy and local markets?

  CH: South African markets have a larger margin of safety than offshore, but a global downturn will still be a sizeable headwind for local equities.

  OM: South Africa is largely geared to the economic performance of China, the US and Europe. So growth, particularly exports, can be weak. However, the South African market is trading at a significant discount to peers and a weak currency acts as a buffer.

  ZD: As a small open economy, South Africa is at the mercy of global factors. I believe South Africa is due a recovery based on an anticipated China recovery which will lift our exports. Additionally, the decline in South African inflation will boost consumer spending, while the easing of monetary policy will boost discretionary spending too. Operation Vulindlela will provide a fiscal stimulus, and reduced levels of loadshedding will boost the South African economy and financial markets. Elections will bring some volatility, however.

  AB: South Africa will follow the policy moves (monetary and fiscal) of the US. There are some idiosyncratic risks (Eskom and Transnet reform) that will contribute to the growth story.

  BS: Short-term US dollar strength is problematic. The positive for South Africa is the very low base the government has created for us from an electricity generation perspective. This looks set to improve. Rail infrastructure should improve in time as well, but may surprise further on the downside before it gets better. The negative is the uncertainty around the upcoming elections here. Markets hate uncertainty and unsettling noise increases dramatically just ahead of the elections.

  NU: It’s hard to see the catalysts crystalising in the short term and continued weakness in China will be negative for South Africa. On the positive side, many assets are cheap and can be accumulated.

• South Africa faces a crucial election of its own in 2024. Should the ANC lose its absolute majority, how do you see coalition politics working out?

  OM: Coalition politics will be extremely murky and can lead to instability in government and policy uncertainty.

  CH: With difficulty. I think it is still likely that the ANC will remain in power (with a partner) even if they get less than 50%.

  NU: Evidence suggests coalition politics will not turn out well, but perhaps we are maturing and can look forward to improved politics,

  ZD: Coalition governments are failing in South Africa as can be seen in the big metros and this will stall any progress. This could inspire many people to go out and vote to give the ANC a decisive majority win. Should the ANC drop below 50%, it will most likely go into coalition with the smaller parties as it has done in municipal elections in the recent past.

  AW: We could potentially see a coalition between the ANC and EFF, which will not be good for the fixed-income market.

  BS: There are too many permutations to consider but we all know what we don’t want - an ANC coalition with the EFF. Anything else would be better.

• What is this (the election) likely to mean for South African markets?

  NU: Other issues will be more important unless there is a material upset on the coalition side.

  OM: High volatility situation. Markets should improve based on incremental improvements at state-owned enterprises (SOEs), however, the structure of coalitions may prove to be a challenge.

  ZD: A non-ANC majority win will bring some volatility in South African markets as it will bring a lot of policy uncertainty.

  AB: The market consensus is that ANC will win. The pivoting factor will be by how much. Less than 50% will be positive for the market, I believe.

  BS: Volatility. However, it’s always worth reminding oneself that our markets are largely driven by the US dollar and global conditions. So ultimately in the medium term, we will be behaving in line with the average emerging market.

  CH: Hard to tell but probably not much, especially if the ANC remains in power.

• Do you see much headway being made in addressing South Africa’s infrastructure issues (electricity, transport, water, etc)?

  OM: Gradual improvements were seen at the back end of 2023. There have been some improvements in the first weeks of 2024, however, funding will be required across SOEs, particularly Transnet.

  ZD: The public-private sector workstreams on energy and logistics should see gradual momentum this year, but we note that progress is at risk of the election outcome.

  AB: Looking at Operation Vulindlela, progress was made in the procurement of new generation capacity. Progress has also been made on the unbundling of Eskom into separate entities for generation, transmission and distribution. The pipeline of private sector generation projects continues to increase.

  The request for proposals was released for the Cross Border Standard Offer Programme – whereby this enables Eskom to purchase 1000 MW of power from any technology on a short basis from utilities and independent power producer in neighbouring countries.

  BS: Yes, eventually and probably when it gets bad enough to involve the private sector.

  CH: Yes, there are early signs that SOE performance is improving and infrastructure order books are strong.

• What other factors are likely to shape South African markets in 2024?

  BS: The government’s alignment in various global conflicts could impact our relationship with the US/West and have negative consequences for economic growth.

  OM: Mainly global macroeconomic dynamics. South African specific risks are largely priced in.

  CH: Hopefully some further good news when it comes to offshore gas development.

  NU: Rate changes are important and we may see some rate cuts, which will be supportive of asset classes in general. The Reserve Bank has been acting with prudence and may have some space to move more aggressively downwards if inflation cools.

• Which are the markets/geographies to watch in 2024? Developed or emerging markets?

  BS: I am a believer that we are moving towards a cycle that will be beneficial for emerging markets, resources and infrastructure-led growth. The transition however will likely be bumpy.

  CH: China – I think we will start to see the impact of a rapidly aging population. The working-age population is in decline and we will likely be able to see the effects of this for the first time.

  AB: Emerging markets I’m keeping an eye on are: Indonesia, Mexico, South Africa (all in an election year). Factors to consider include the emerging vs developed market growth differential, which has always favoured emerging markets (they tend to grow faster); the dovish central bank policy positions, which should support emerging markets; and the fact that emerging markets are coming out of the 2020-2022 default phase.

  Much depends on US dollar weakness. When you price the outlook for dollar weakness you need to divide 2024 into two halves and that’s when the market will start pricing in US elections. Relative growth differentials and monetary policy differentials factors will also need to be considered in the event of US weakness.

• What are the sectors to watch? Look at cyclicals vs defensives, growth vs value, offshore vs local, industrials vs resources, bonds vs equities, tech, etc.

  CH: Fixed income should do well if there is a global slowdown. Value over growth.

  Will the tech finally show some cracks?

  OM: Cyclicals at the back-end of 2024. Defensives in the beginning as the global macroeconomic uncertainty plays out.

  ZD: Cyclical sectors are ones to watch in the early part of the cycle and thus tend to outperform when the economy turns. Growth/technology stocks will continue being boosted by the artificial intelligence (AI) theme. Domestic stocks look attractive because of their valuation and based on the South African economy recovering as expected.

  AB: South African-focused equities look set to improve this year as more off-grid power gets put on the grid, which could improve growth and overall corporate revenue; couple this with potential rate cuts, which could reduce borrowing costs.

  BS: Short term I think defensives over cyclicals, value over growth, ie incorporating a margin of safety, both offshore and local (always diversify). Bonds over equities. But keep in mind that this view could change quite quickly. I am more optimistic about equities in the medium to long term. Given the unpredictability of the timing I wouldn’t try to be too cute, but I prefer to be overweight equities long term, if you can stomach the volatility.

  JW: I feel some bias towards small-cap value. It’s bombed out and a classical recovery play.

  AP: I prefer defensive sectors, with an overweight to Europe as valuations are depressed, given that interest rates will come down quicker in Europe (currency hedged). On the fixed income front, overweight G10 government debt and overweight duration in these markets and once again, overweight Europe. I will use current strength in emerging markets to go underweight as I do think China will not be the long-term growth engine that it was in the past.

• We saw tech surprise as a theme in 2023, thanks to the hype about artificial intelligence. Will this continue in 2024?

  BS: I think it will be a game changer for business and continue to draw investor attention and capital. Who the long-term winners will be is very difficult to predict. Any first-mover advantages will probably be competed away quickly.

  NU: The million dollar question – on balance I believe earnings momentum needs to justify today’s prices but over five to 10 years one may well be rewarded by holding tech.

  AB: Yes. I think the valuations currently already include AI.

  CH: I think not. AI may result in more competition for listed stocks from smaller, unlisted companies. This is good for the economy but probably not for the market.

  JW: AI needs to “show me the money” in 2024. We might get more positive surprises from the companies that are successfully deploying it to boost revenue and/or productivity.

  AP: Tech surprised in 2023, but the probability of that being repeated in 2024 is slim.

• What are some of the other trends/themes we should be keeping an eye on in 2024 that could have an impact on investment?

  AB: High-quality tech (particularly AI); the Japanese economy; Mexican elections –  a win for Xochitl Galvez would be great for emerging markets.

  BS: I think the infrastructure theme (energy transition as well as replacing old infrastructure) is underappreciated both domestically and globally. I also think investors will increasingly become more aware of the impact their investments have on society and the environment, as company disclosure improves. Why wouldn’t you prefer a responsible business when assessing two businesses with a similar expected return profile?

  CH: Housing policy in the US. More YIMBY (yes in my backyard) victories will mean lower rental inflation and lower rates over the long term.

  JW: The whole GLP-1 (drugs developed to treat diabetes but now being used for weight loss) space is interesting, especially for the “losers”. Increasingly I note that for every “winner,” there has to be a loser for the hedge funds to go short of. This probably creates interesting value opportunities.

  AP: European energy independence will be a long-term secular theme for me to watch. It might be slow, but will surprise on the upside.

  NU: Can profit margins, and especially US ones, remain at the levels they currently are at? Could they expand with technology or do they revert to the longer-term mean? Which industries/businesses will be negatively impacted by technology and AI? Can countries that are laggards in tech ever catch up?

• What would be your “Grey Swan” events for 2024 – defined as events with a very low probability but a big impact (black swans by definition cannot be assigned a probability at all)?

  OM: Significant escalation in hostilities in the Middle East. And a more pronounced fight back by Russia. My base case is for these situations to gradually de-escalate.

  ZD: A China/Taiwan invasion would turn the world upside down.

  AB: The end of OPEC; Biden withdraws from the US elections; another pandemic similar to Covid-19; turnaround for emerging market currencies (turnaround for Turkish lira and Venezuela get back to its feet and subsequently enter the debt market)

  CH: Catastrophic storms affecting the ability to insure homes/cars; oil supply disruption in the Middle East; Argentina does well – shifting elections and policies across the globe; loadshedding comes to an end (it is an election year after all).

  JW: Taiwan escalation; Ukraine escalation; Middle East escalation (seems to be a theme here); Putin cuts off all energy supplies; massive cyberattack; extraordinary weather event.

  AP: US fiscal spending and shutdowns could be nastier than what we are used to.