In 2024, we will enter a ‘new world’ that is defined by economic uncertainty and geopolitical instability, but also profound technological change, says a report from UBS’s Chief Investment Office.

 

With uncertainties set to persist, investors should focus on quality, get in balance, and stay disciplined yet agile, says the Year Ahead 2024, UBS Global Wealth Management’s (GWM) award winning Chief Investment Office (CIO) report.

 

The scenario leads to three key conclusions for the year ahead, says the report: They are:

 

• First, the strength of the US economy in 2023 is likely to give way to slower, though still positive, growth in 2024, while European growth should remain subdued, and China enters a “new normal” of lower, but potentially higher quality growth. 

• Second, central banks are expected to start their rate-cutting cycles next year. 

• And finally, politics will have an outsized role in 2024, with the upcoming US elections, and ongoing geopolitical tensions and wars.

 

With that in mind, the report’s core recommendations for the year ahead include:

• Manage liquidity. With interest rates expected to fall in 2024, investors should consider limiting overall cash balances and take opportunities to optimise yields, using fixed term deposits, bond ladders, and structured solutions.

• Buy quality. Quality bonds should deliver both yield and capital appreciation, while stocks with stable balance sheets and sustainable profit margins are likely best positioned to generate earnings despite weaker economic growth.

• Trade the range in currencies and commodities. With the USD expected to remain well supported around current levels, and oil prices to trade in a $90–100/bbl band, yield generation strategies, or strategies that enable investors to systematically buy currencies below current levels offer opportunity.

• Hedge market risks. Geopolitical uncertainty means investors need to prepare for volatility ahead. In addition to diversification, investors can further insulate portfolios against specific risks through capital preservation strategies, using alternatives, or with positions in oil and gold.

• Diversify with alternative credit. The backdrop of lower interest rates and elevated price and spread volatility caused by high global debt balances is supportive for various credit strategies including credit arbitrage and distressed debt. 

 

Mark Haefele, Chief Investment Officer at UBS GWM, says: ”We see 2024 mark the beginning of a new world. And while it can be easy to feel a sense of trepidation when faced with new challenges, years of adversity reinforce three things in terms of investing – the value of global diversification, the virtue of patience, and, most important, the resilience of humankind.”  

 

Five Ds to watch in the decade ahead

The economic aftermath of the pandemic has been wide-ranging and often unexpected. The unusual economic mix of consistently high inflation and interest rate levels not seen in more than 15 years, yet defiantly low unemployment and robust growth, begs the question of whether the “new world” also brings with it a new macroeconomic regime. 

 

The answer to that question will be defined by developments in the “Five Ds”: deglobalization, demographics, digitalization, decarbonization, and debt.

 

According to the report, investment opportunities to capture value and growth in the decade ahead include:

• Picking leaders from disruption. Some of the highest returns in equity markets over the decade ahead are expected to come among those companies that can harness new technologies to grow markets, dislodge incumbents, or slash costs. Successfully identifying these “leaders from disruption” is critical to boosting long-term portfolio potential.

• Capturing growth with private markets. Private market managers should be well positioned to provide capital, through equity and debt investments, to support key growth areas including the transition to net-zero; healthcare and infrastructure; as well as AI and digitalization. The asset class therefore offers attractive opportunities for investors to gain differentiated exposure to long-term opportunities in exchange for lower liquidity. - TradeArabia News Service