A New World
Never before has a pandemic caused governments to forcibly and almost simultaneously shut down their economies and then shock them back to life. The result has been a return of inflation, labor market stress, and a surge in interest rates, bond yields, and government debt. At the same time, wars in oil-producing regions, a maturing China, and the rise of national industrial and environmental policy are remaking the geopolitical sphere. New developments in artificial intelligence (AI) also threaten to transform humanity. This leaves the global economy in a new world defined by economic uncertainty, geopolitical and environmental instability, but also profound technological change.
Key Questions for 2024
The report outlines the key questions investors should consider for 2024:
Growth Outlook – The US economy is expected to see a long-awaited slowdown in 2024 as consumers face mounting headwinds. European and Chinese growth are also expected to remain subdued.
Rate and Yield Outlook – Central banks are expected to commence rate-cutting cycles in 2024 as inflation falls. Government bond markets are seen as overpricing the risk that high interest rates will be the new normal.
Political Impact – Politics are expected to play an outsized role, with the US presidential election, ongoing wars, and US-China rivalry all impacting markets. Investors should prepare for volatility.
Investing in 2024
The report provides five broad ideas for investors:
- Manage liquidity by limiting cash balances and optimizing yields.
- Buy quality, focusing on quality bonds for yield and capital appreciation, and stocks that can generate earnings despite weaker growth.
- Trade ranges in currencies and commodities, selling USD upside and buying currencies at cheaper levels. Brent crude is seen trading between $90-100/barrel.
- Hedge risks using capital preservation strategies, alternatives like hedge funds, and positions in oil and gold.
- Diversify with alternative credit like credit arbitrage and distressed debt, which benefit from price dispersion.
The Decade Ahead
Over the coming decade, developments in five “Ds” – deglobalization, demographics, digitalization, decarbonization, and debt – are expected to have significant economic and market impacts. These trends are seen creating both challenges and opportunities for investors.
Artificial intelligence (AI) in particular is highlighted as having potential to meaningfully improve productivity, though the implications for growth are less clear. If fully realized, AI could help alleviate demographic challenges from aging populations. The report outlines a framework for how new technologies have historically created value across sectors.
Significant investment will be needed in healthcare, digitalization, and energy transition given demographic and environmental challenges. But high government debt levels mean public funding may be constrained, giving private markets an important role in providing financing. The report outlines opportunities in private equity, private credit, and real assets.
Investing in the Future
The report identifies three primary ways for investors to position portfolios for the decade ahead:
- Pick leaders from disruption – Significant disruption is expected across technology, energy, and healthcare as new technologies are commercialized. Successfully identifying the companies harnessing these disruptions offers high return potential.
- Capture growth with private markets – Private market managers can provide equity or debt financing to companies across stages. This offers attractive return potential in exchange for lower liquidity.
- Getting in balance – A globally diversified multi-asset portfolio remains the most effective way to both protect and grow wealth over the long run. The report outlines the “Liquidity, Longevity, Legacy” framework to help investors clarify goals and construct balanced portfolios.
In conclusion, a new world will mean complexity and volatility, but also opportunities to grow wealth by building clear plans, maintaining balanced portfolios, and staying disciplined yet agile. The report aims to provide the necessary context and ideas to successfully navigate changing markets and maximize returns over the coming year and decade.