Investment Themes 2024

A year of extremes and exaggeration
 

The widespread impact of higher rates

2023 was a year when we finally saw inflation rates fall from historic highs. Stock markets managed to advance on the back of a surprisingly resilient global economy, in the face of short- and long-term interest rates rising to multi-decade highs.

The highest interest rates in 15 years continue to have huge lagged knock-on effects across the global economy – on real estate prices and on corporate investment. But there are also some beneficiaries of higher interest rates of course, notably savers who can now take advantage of attractive risk-free rates of return not seen since the 2008 Financial Crisis.

Key trends in focus for 2024 

We believe that there are a select few trends that investors should keep front of mind when looking to the new year:

• The impact of far higher interest rates has not yet been fully reflected in (lower) economic growth and inflation rates, above all in the US. Moreover, central banks continue to repeat their mantra of “higher for longer”, suggesting that they will not reduce interest rates until they are convinced that inflation will not flare up anew.                                                   
• The shift away from globalisation and towards national interests will continue, potentially triggering shortages of raw materials and goods. This shift is also powering near-shoring and re-shoring of manufacturing production in order to reinforce supply chains, especially of key strategic industries, such as semiconductors.                                            
• Energy transition momentum continues to accelerate, propelled by a 2023 summer that was the hottest on Earth since records began in 1880. Insufficient progress on climate goals up to now, and an increased emphasis on energy security are obliging global governments to commit huge financial resources to reduce our reliance on fossil fuels.                                                                                                                                                                                                                                                                                                                       
•  Lifestyles have changed probably permanently following the 2020 pandemic: more and more, people are putting working at home or free time on an equal footing with financial compensation. This is having a profound impact on patterns of consumption, as well as on the ongoing demand for office space in big cities.                                                                                                                                                                                                                                              
•  New obesity treatments: the arrival of effective medicines from Novo Nordisk and Eli Lilly to treat obesity promises potentially the biggest improvement in average longevity since global campaigns to persuade smokers to quit were promoted in the 1970s and thereafter.                                                                                                                                                                                 
• Global stock market leadership has become extremely focused on a very narrow set of mega-cap technology stocks - representing a growing concentration risk in supposedly diversified investment portfolios. The warning signs from the 1970s Nifty Fifty and the 2000 technology bubble seem to be echoed in today’s Artificial Intelligence mania, centred around just 7 US tech stocks
  

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