Expert investment views:
One wealth manager extols the equities opportunities in sectors where valuations are now at attractive levels
Investors are warned ‘the devil will be in the detail’ when it comes to the investment and financial planning implications of elections
High-quality fixed income securities are tipped to become increasingly attractive, with demand set to grow green and sustainability-linked bonds
Featuring this month’s experts:
1. January hangover after the Christmas parties?
2023 ended up going out with a bit of a bang for investors, with November and December being richly rewarding months. Global equities rose by 10% and global bonds 7%. Why this change from what had been a miserable period? A major shift in messaging from the Federal Reserve over interest rates and the US Treasury over bond issuance was behind it.
Against this backdrop of a more positive interest rate environment and lower bond yields, recent economic data has been dull but not disastrous, hinting an economic ‘soft landing’ could still be on the cards. The obvious question is that after these Yuletide celebrations, will we now experience the January blues? There is little doubt markets will be tested in the coming months. We think the recent move in bond yields was too aggressive and current government bond yields and credit spreads will be towards the bottom of a short-term range.
But despite short term risks and likely volatility, we believe the outlook for fixed interest will stay positive this year. Equity valuations are now more expensive and they’ll be tested by the next set of corporate results and how companies will navigate an uncertain 2024
But despite short term risks and likely volatility, we believe the outlook for fixed interest will stay positive this year. Equity valuations are now more expensive and they’ll be tested by the next set of corporate results and how companies will navigate an uncertain 2024. But our base case for equities is that there are lots of opportunities in sectors where valuations are at a good level. The US in particular looks promising, where the market is broadening out after a period dominated by the ‘Magnificent Seven.’
Arguably, the biggest risk comes from investor complacency in a year where we’ll continue to see a shaky global economy and we have political risks a-plenty. Last year was definitely a year for balance, diversification and an open mind. And we think 2024 will be much of the same.
Co-Chief Investment Officer, Canaccord Genuity Wealth Management
2. The devil will be in the policy detail
After a year during which markets spent much of their time focused on a single theme, the final months of 2023 suggested that there might be more to life than Artificial Intelligence. Falling inflation figures across the UK, US and Eurozone and comments from major Central Banks raised prospects that the peak in interest rates had been reached. This perfect cocktail of cooling inflation and peaking rates, achieved without a recession, triggered a broad rally across asset classes – an outcome that would have confounded most forecasters a year ago.
Whilst these often cause more angst for markets in their anticipation than in their aftermath, a general election in the UK and a contentious battle for the US presidency will have longer-term implications for investing and financial planning alike; the devil will be in the policy detail
Looking ahead, fears of recessions and stagflation have given way to a new consensus: that falls in inflation will allow interest rates to be reduced in time to let economies slow without precipitating a major downturn. Recent data supports this, and consensus may prove right. However, the lesson of recent years is that what seems certain on the first of January can quickly be overtaken by events; whether pandemics, wars, or the failure of Switzerland’s second biggest bank!
Elections will be a rolling feature of this year with more voters going to the polls across large swathes of the world than ever before. Whilst these often cause more angst for markets in their anticipation than in their aftermath, a general election in the UK and a contentious battle for the US presidency will have longer-term implications for investing and financial planning alike; the devil will be in the policy detail.
Partner – Portfolio Manager, James Hambro & Partners
3. Snapping a sustainability lens on for 2024
While 2023 was a year of surprising economic resilience and regulatory progress, 2024 presents a landscape ripe with opportunities for sustainable investment, particularly in fixed income securitiesOur expectations for 2024:
- Economic and political forecasting: As we look to 2024, a crowded global political calendar of significant upcoming elections will influence our investment approach. We’ll closely monitor these developments, assessing their impact on economic and corporate behaviours, especially regarding interest rate decisions.
- Preference for bonds: With expectations of declining interest rates and continued geopolitical uncertainties, we foresee high-quality fixed income securities becoming increasingly attractive. Additionally, green and sustainability-linked bonds will likely gain demand due to the transition to a low carbon economy and commitments made at the Conference of the Parties (COP) 28 to move away from fossil fuelsii.
- Sustainable investment focus: We expect the momentum in Europe for sustainability-linked regulation to continue, influencing global business practices and investment opportunities. We anticipate these developments will positively affect the sectors we focus on, such as renewable energy and healthcare, reinforcing our commitment to sustainable and impactful investing.
i MSCI ACWI for Stocks, Bloomberg Aggregate for Bonds
ii COP28 Agreement Signals “Beginning of the End” of the Fossil Fuel Era, United Nations Climate Change
Chief Investment Officer at Tribe Impact Capital
The investment strategy and financial planning explanations of this piece are for informational purposes only, may represent only one view, and are not intended in any way as financial or investment advice. Any comment on specific securities should not be interpreted as investment research or advice, solicitation or recommendations to buy or sell a particular security.
We always advise consultation with a professional before making any investment and financial planning decisions.
Always remember that investing involves risk and the value of investments may fall as well as rise. Past performance should not be seen as a guarantee of future returns.