Outlook 2024 – The Comeback of Risk Taking and Asset Gains

  |   Geopolitics, Capital Markets

Article by Beat Wittmann, Chief Investment Strategist at Key Family Partners SA

Geopolitics – The US Presidential Election Circus

Geopolitics remain complex but we don’t expect further escalation, most importantly, nor weaponization in the energy field. Both conflicts – Ukraine/Russia and Israel/Gaza – are contained and the Taiwan question has moved to the back burner as both the US and China focus on economic matters and keeping the equilibrium in their great power competition.

The number one geopolitical event in 2024 will be the US presidential election. At this point, predictions are close to impossible. In an ideal world, neither Biden nor Trump will be elected but a bipartisan, pragmatic new president.

Global Economy – Gradual Normalization

Economic sentiment is on a downward trajectory, particularly, in Europe. From a contrarian point of view, it is encouraging to read the gloom and doom investment forecasts for 2024. The monetary and credit cycle is very advanced, leading economic, business and investment activity.

Even typically lagging labor market data finally show signs of weakening. We see this as a positive as it permits monetary policymakers to pause while keeping face. However, we expect the ECB to continue to lag and pivot only in fear of getting it wrong – again.

Capital Markets – Risk On

The crucial factor for the global capital markets’ outlook is the state of US monetary policy. Risk assets are discounting a normalization of interest and inflation rates well ahead of the real economy.

Public markets will lead the charge in 2024 and private markets typically lag. However, we expect extraordinarily attractive entry points with steep discounts thanks to forced sellers in need of liquidity.

Asset Allocation – Bonds and Equities top Cash

Cash was king in 2021, 2022 and in much of 2023. But no longer after the turnaround in the US led global monetary and credit cycle. Consequently, in 2024 we firmly expect bonds and equities to beat cash.

2024 will be the year to deliver Beta performance on risk assets and provide outsized Alpha investment opportunities – after negative sentiment has driven down valuations and widened the disparity between winners and losers.

Consistent with the gradual normalization of US monetary policy is the weaker USD, supporting the EUR and emerging markets mainly South East Asia.

Extraordinary Investment Opportunities

Positive and dominating investment trends include technology, energy transition and longevity. These trends will have medium to longer term transformative impacts on societies, economics and businesses.

Longevity, the search for a long and healthy life – a theme particularly attractive for Europe and Switzerland housing multiple leading pharmaceutical, nutrition and luxury&lifestyle brands.

Risk Management is Key

Risk management will remain crucial in 2024 as painfully high interest rates trickle slowly through the economic system.

Therefore countries as well as companies with bad capital structures and weak leadership will be exposed to distress and default risks, in turn, with negative ripple effects to over-exposed lenders and investors.