Ten surprises for 2024

EXACTLY a year ago, I wrote about how indicators were lining up for a positive equity market performance this year.

My view at the time was contrary to the pervasive bearishness that economists and investors were forecasting.

The inspiration for that article was the annual 10 surprises list that Wall Street investor Byron Wien wrote for three decades.

The list was one of the most widely read investment missives – offering his predictions for financial markets and the global economy which he believed had a higher probability of occurring in the coming year, but were not widely anticipated by the average investor.

While the majority of such surprises did not occur, his insights, derived from a deep understanding of market dynamics and economic indicators, aimed to challenge conventional wisdom and provoke deeper thought among investors.

The few that did occur over the years often proved to be some of the more significant events.

In his 10 surprises for 2023, he correctly foresaw that real rates (that is, after accounting for inflation) in the United States would turn positive; that modern monetary theory would be discredited as deficits became inflationary; and that dollar investors could take advantage of a weak yen to invest in Japan.

Byron passed away in October, so in tribute I thought I would write my own list of potential surprises for next year.

1. Global equities post double-digit returns for the year

There is still a lot of caution from investors. Over US$1 trillion has gone into money market funds, the world’s most boring investment vehicle. This is the highest inflow in history.

A surprise would be that, despite volatility brought on by what will likely be a hotly contested US presidential election, this wall of cash climbs the wall of worry and is redeployed into equities as fears of a recession recede.

All the neglected sectors that have underperformed in 2023 (basically, anything non-tech) catch up as the rally broadens, creating the biggest Fomo (fear of missing out) trade since the post-Covid rally.

2. The interest rate hike cycle ends, but, instead of cuts, rates stay at 5 per cent for most of the year

Counter-intuitively, this is a bullish scenario for stocks. The period from the last US Federal Reserve rate hike to the first cut produces an average 5-per-cent gain. In almost half of the observations, gains have been more than 12 per cent.

From the first rate cut to the market’s eventual low, however, the loss has been 23 per cent on average over 30 weeks. Historically the start of a rate cut cycle tends to be negative for equities.

3. Gold becomes the best-performing asset of 2024

Central banks have been big buyers of gold for years, especially in the larger oil-producing countries.

The United Arab Emirates recently announced the pricing of oil in renminbi, as part of the global economy moves away from the global petrodollar system that has been in place for the last 50 years.

4. Ukraine and Middle East conflicts end

It is telling that oil prices continue to be very weak, and have been at the lowest point in four months, despite talks of production cuts among the Organization of the Petroleum Exporting Countries.

US politicians will find it difficult in an election year to authorise continued deficits to support military conflict overseas.

5. Uranium extends this year’s price gains

Governments will increasingly realise that intermittent clean energy needs a backup source.

As that happens, the world could turn less negative on the risks of nuclear power plants.

6. China equities rally

After eight consecutive years of significant underperformance, China’s government finally realises that it needs to stimulate the economy and provide a backstop to the country’s real estate problems.

It could follow the examples of the US and Europe to do “whatever it takes”.

7. Japanese equities hit new all-time highs

Japan’s equities are 16 per cent below their all-time high in 1989.

The return of global inflation could end the Bank of Japan’s zero interest rate policy, as the country comes out of decades of deflation.

8. Latin American assets (both equities and bonds) outperform

Brazil’s stock market has gained 24 per cent this year, but hardly anyone is paying attention as allocations by global investors are near zero.

The market’s earnings per share average has gained 50 per cent in the last two years, but stock prices are flat.

This has caused price-to-earnings ratios to fall to single digits. Meanwhile, the stocks pay an attractive dividend yield of 5 per cent.

Argentina’s new president is a self-described “anarcho-capitalist” who is looking to dollarise his country, and has spoken about abolishing the country’s central bank.

On the bond side, Latin American yields are far above the rate of inflation. The region’s central banks have hiked rates faster than anywhere else, and have gotten inflation under control.

9. Electric vehicle batteries get shaken up by alternatives to lithium-ion

Lithium spot prices have already fallen from US$1,200 per metric tonne (MT) to US$340 per MT. Shares of lithium mining companies have lost more than half of their value in the last 12 months.

Lithium battery alternatives are emerging, such as sodium-ion batteries that do not need rare metals.

10. US housing derails a soft landing

Consensus has shifted from a recession in 2023, which never happened, to a soft landing in 2024. One significant risk to this outlook is US housing confidence.

Real estate tends to lead stock market prices, as most people’s wealth is concentrated in the value of their home.

As China is learning, weak real estate prices cause consumers to pull back on spending – accelerating an economic slowdown.

The US homebuilder confidence index has posted four consecutive months of negative prints, inching closer to the level of the fourth quarter of 2022 when stock markets bottomed.

This index has a strong tendency to lead equity performance, often topping and bottoming before equities do. A drop below last year’s low would be a bearish indicator.

The writer is head of investments for Singapore at AlTi Tiedemann Global. The views and opinions expressed in this article are solely the author’s and do not reflect the views or positions of AlTi Global or its subsidiaries. This content is intended for informational purposes only and should not be considered as financial advice.