Fortune will favour the brave

Here we go again. The world is on thin ice, with wars raging in Europe and the Middle East. Governments globally are drawing lines, and the social divide between different groups of people feels like an abyss. And don’t get us started on the 2-degree target for climate change. Meanwhile, measurements of worry in the financial markets are at multiyear lows…perhaps Wall Street, once again, forgot to read the memo. It’s always hard to predict what will drive investors. And we look ahead to 2024 – and this time, it feels more critical to get it right. Overall, higher interest rates mean it will take higher potential returns for investors to shift from the safety of cash. Inflation should continue to trend lower.

At first glance, this might seem like an easy win, but it’s important to remember that central banks are not likely to move quickly (given that they just dodged the inflation bullet) unless the growth outlook appears dire. Investors will require higher compensation for equity risk, creating more demand for targeted thematic opportunities. Predictions of a hard landing in 2023, driven by the rapid rise in interest rates, have been pushed out to 2024. What we do anticipate is slower GDP growth with some regions dipping into recession. Without a clear inclusive growth trend, investors will have to search for opportunities. This environment may not appear to be packed with excitement, but there are returns hidden away, just waiting to be discovered. There will be pockets of returns, but sluggishness in the broader indices.

That’s okay, since thematic investing is an analysis in how key drivers will react, given macro and micro conditions. Aggregate GDP is a factor, but it’s not the be-all and end-all. Fortune favours the brave. As we leave 2023 behind, 2024 looms large, full of prospects for those who understand thematic investing. Opportunities will crystallise as the days and months tick by, just as AI did in 2023, after ChatGPT sparked a revolution at the close of 2022. For our 2024 Outlook, we’ve hand-picked the top ten themes expected to outperform the market, taking into account the current climate.

Wishing you a wonderful holiday season and a prosperous 2024.
Swissquote Investment Product team