Ruses, risks and real threats for 2024

SURPRISES sway stocks the most – positively and negatively.

While I envision double-digit stock market gains in 2024, bears cannot believe it – pointing to tired 2023 scare stories plus newer, heavily discussed fears such as Gaza/Israel.

But no. Markets pre-price widely watched worries fast.

Anyone who would sell on global central bank wiggles, Western inflation, tragic wars, a weak China hitting Singapore’s trade, recession fear – and more – likely did so long ago. Stocks reflect those fears.

Real risks must be big, economically significant events that few fathom – stealth torpedoes unpriced by markets. I highlighted some last March. Thankfully, none struck … yet.

While I am bullish, some concerns remain worth monitoring – plus some new additions.

Geopolitically, many worry that Ukraine and Middle East conflicts threaten stocks. But both are economically small and long-discussed – hence, pre-priced.

Taiwan/China tensions? There is little real sign that war risk is more elevated now than in past years. It may have fallen as China sweats repeating Russian President Vladimir Putin’s Ukraine quagmire.

But risks from the nuclear armed triangle of China, India and Pakistan still fly under the radar.

Historical border skirmishes, conflicting religions and cultures (a common duo), and competing economies and politics keep tensions simmering.

Pakistan’s dinky, moribund economy saw 2023 gross domestic product plunge while inflation soared 30 per cent year-on-year and its risky government debt ballooned.

Plenty of political uncertainty remains, too, after the new coalition government squeezed out incarcerated former prime minister Imran Khan’s party despite its first place position in February’s election.

Next door, India – the world’s fifth-largest economy – grows swiftly but bristles at Russia luring Pakistan into Putin’s orbit with discounted oil that India previously got cheaply.

China? I showed you that slowing growth there will not hurt Singapore – but the endless economic restrictions that President Xi Jinping imposes nonetheless mean China’s “miraculous” growth is finished.

India chafes – wanting to be the regional swing factor playing East against West – and stews enviously as China favours Pakistan. China, jaundiced as India’s population size overtakes its own, wants to thwart India’s progress. The odds of war are not high – but they are not tiny, either.

Elsewhere, the unlikely but possible “silent” credit freeze I detailed last March has not happened. But risk lurks if global loan growth falls too far below inflation rates, implying contracting credit.

Had this happened in 2023, it could have caused global recession. Yes, year-over-year Singapore lending contracted throughout 2023 while prices kept rising. But lending is global, so this is more about America and Europe.

Hotter inflation and rate hikes there could have driven bank deposit costs up fast. That has not happened. US year-end average savings deposit rates were at 0.46 per cent, barely up from last February’s 0.35 per cent low.

Still, some banks warn that rising deposit rates could pare 2024’s net interest income. In the 12 months till January 2024, US loan growth fell from 11.6 per cent year-on-year to 2.1 per cent – below US consumer price index’s 3.1 per cent y-o-y rise. Eurozone business lending slowed notably in 2023, too.

Overall global lending remains ok, but I will be concerned if it falls much farther below global inflation.

Falling money supply globally underpinned inflation’s 2023 cooling. Yes, Singapore’s M3 money supply growth – the broadest measure here – accelerated in 2023’s back half, but only to 4.6 per cent by year-end.

US M4 – America’s broadest measure – contracted throughout 2023. Eurozone M3 fell from last July until December’s uptick.

Normally, that might worry me. Shrinking money supply can drive deep recessions. But the declines followed an insane central bank-driven Covid-induced peak that was wickedly abnormal. These declines are slowing but still could flare badly.

Regulatory risks? New cryptocurrency rules hitting other assets have not happened – yet.

The world’s crypto crackdown, so far, mostly features criminal charges for FTX’s founder and Binance’s CEO. Watch for developments stemming from Singapore’s coming crypto rule rollout, America’s bitcoin exchange-traded fund approval and the EU’s roll-out of the Markets in Crypto Assets Regulation.

Watch artificial intelligence (AI), too. Not killer robots, but excessive rules regulating it killing innovation and hampering growth.

Singapore’s proposed Model AI Governance Framework for generative AI claims to seek balanced regulation. But often, well-meaning, unintended regulatory consequences backfire badly.

The EU’s new package looks navigable for Big Tech. But the G7’s poorly named “Hiroshima AI Process” may still spark explosive outcomes.

I remain bullish on 2024. But, as always, my main fear is something huge that nobody foresees – a true wallop.

Detecting these requires clearing your mind of recent events. Do not focus on what others fear. Those are yesterday’s fears – the last wars. Instead, consider potential all-new, undiscussed events in the next three to 30 months.

As 2023 revealed, widely watched fears are always, everywhere bullish.

The writer is the founder, executive chairman and co-chief investment officer of Fisher Investments, an independent investment adviser serving both individual and institutional investors globally