We are now far enough into January to have absorbed enough data and commentary to get a feel for how market participants are expecting 2024 to turn out for the year. In a word, as they say in Lithuanian (implying a few), the mood is nervously optimistic.
Going into a little more detail, here are some pointers for you from the first 3 weeks of 2024. As the year progresses, I will keep you alerted to new data that will help you with asset allocation decisions, profit taking and risk control. As always, you can ask me specific questions or comment if you are a subscriber.
Rate reduction recalcitance
Interest rates will come down not only when inflation numbers look like coming into target ranges, but also when employment markets look less tight and wage settlements have slowed. This risks waiting too long on the basis of right wing political bias as opposed to good economics, in my view, but will likely see European rates come down before UK rates, which has implications for porfolio asset mixes. A strong Sterling makes non-UK assets less attractive short-term.
You can’t Trump that
If I were to base my judgement on the news reports I read of the Davos economic summit/rich peoples’ beano, I would assume that the biggest threat to the global economy is that unsuppressible orange narcissist who may well make the lead role in ‘USA 2 – Nero Reincarnated’, a production well under way in New Hamapshire as we speak. Certainly, a return of the Donald to the (claimed) most powerful post in the world will have an impact, but I personally don’t think that politics, bar the most anti-capitalist, ever has that much direct impact on equity markets. Government fiscal and monetary policy can, but in the US, one is talking about a difference between the Republicans and the Democrats which is really only a question of how much of the trough gets allocated to the rich, as opposed to the amount of food in the trough.
Broken China?
I have mentioned before that the CCP, an allegedly anti-capitalist party in charge of the world’s second biggest economy, is on the verge of becoming one of the world’s biggest shareholders albeit indirectly. It has been announced that 2 trillion Yuan (around $280 billion), from Chinese assets held overseas at the moment, will be used to buy shares under state direction on the Hong Kong stock exchange, which announcement caused a gentle tick up in the general long term free fall of that market over the last year. The total value of the main Chinese stock market index is now as far away from the main US market as it has been for 5 years, but one commentator made the likely valid point that Chinese shares are very cheap, but that’s because there are no buyers. I don’t expect that to change any time soon. I am also curious to see what assets get sold to raise the 2 trillion Yuan?
We’re backing Britain
The overall message from comments about the UK stock market is now in line with what I have been saying for ages: it is cheap in parts, there are great businesses in the UK and actually the economy has done better than Germany’s, of late. The main opportunities are likely to be outside the FTSE 100, with the mid-cap sector looking the most likely to benefit first, in my judgement.
Tech Titans
The idea that AI (or Allows Indolence) is going to take a hold on all sorts of working processes (it will, I am sure, although not always with the desired results) is thoroughly embedded in the minds of stock market participants, and adding ‘AI’ to any product or service is an automatic marketing default now. Even my phone case, not from the phone makers, announces, perhaps hopefully, that I have AI cameras. In fact digital photography has been using AI for many years and that has driven the demand for very fast chips in mobile phones where reviewers often treat camera performance as the main buying decision factor – proof of a sort that the market is not wrong in backing chip making companies, and all those associated with the semiconductor industry infrastructure. This is a bandwagon with plenty of momentum and high valuations do not scare me off for now. As always, the wheels will come off eventually, but I would not bet on that happening in 2024. Taking any strong profits as they arise is however to be advised.
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