1st Quarter 2024 Market Outlook

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2024 Market outlook

Investment markets are generally offering attractive values with a positive outlook for the medium-term, as we foresee a new cycle of economic growth emerging as interest rates decline. However, we are expecting volatility this year, given uncertainties remaining in global investment markets, requiring continued investor patience.

2023 – recoveries and volatility

The JSE ended up 9.3% in 2023 after a sharp year-end spike up of 10%, as markets accepted that interest rates had peaked. Despite the recovery, it was a year of constant volatility leading on from 2022, with average annual returns of only 6.3% p.a. over the last two years, much in line with average inflation.

JSE All Share Index and Inflation

Global markets recovered in 2023, after spiking up 16% in the last two months of 2023, making up the negative market returns of 2022, resulting in a flattish US Dollar return over the last two years.

MSCI World Index (US $)

2024 – Another year of uncertainties

The world votes – a test for Democracy

In 2024, over 50% of the world’s population will cast their votes in more than 70 countries. Of these, 40 countries are democratic, comprising 40% of the global population. Key elections, with potentially significant altering outcomes will be in the USA, Taiwan, Ukraine, India, Venezuela, and SA.

Geopolitical risks heightening

The global East / West divide is widening, which is not helped by the tragic Ukraine and Israeli wars, where the USA and China are taking opposing sides.

USA and China relations appear to be near an all time low and the world desperately needs an improvement to support global economic prosperity.

The possibility of protracted Ukraine and Israeli wars could start weighing negatively on investment markets and potentially fuel further deterioration of East / West relationships.

Declining Inflation

Global inflation has peaked and is declining towards normal levels, which is very positive. However, there are still concerns that this decline may take longer to normalise and therefore slow the rate of interest rate cuts, which is critical to stimulate economic growth.

Currently, global markets are pricing in US interest rates to be cut 1,5% in 2024, which will only happen if inflation continues to decline closer to the desired 2% level.

Global economic slowdown

With global interest rates spiking in 2023 to combat rising inflation, a consequential economic slowdown has taken place. However, the fear is whether the slowdown will lead to a recession and to what extent?

Broadly, global economic growth is expected at 2.9% in 2023 and forecast to slow to 2.7% in 2024 with no recession. However, there may be pockets of short recessions, more likely in the UK and Europe and even the USA in 2024.  This may initially spook the markets but would likely lead to a sharper decline in interest rates, which would be positive.

AI (Artificial Intelligence) hype continues

AI’s (Artificial Intelligence) efficiency as a fast gatherer of data from the internet gallops along at pace in its quest to improve productivity significantly. But it will take several years for infrustructure and processes to adapt to this new technology, therefore only materially boosting GDP into the 2030s. Despite this, the hype around this new technology is likely to still support high technology valuations into 2024.

A weaker US Dollar

US Dollar real exchange rate

The US Dollar has benefited from many years of stimulus pumped into the economy post the Global Financial Crisis (GFC) in 2007 and then COVID in 2020. This stimulus is now being withdrawn with sharply higher interest rates, which is likely to be negative for the US Dollar over the next few years.

A likely weaker US Dollar into 2024 is positive for emerging markets, commodities, and SA.

China – Waning or Recovering

China contributes 18% to global GDP but over the last few years, its growth has been disappointing and targets may not reach this year’s government GDP forecast of 5%. Investor confidence has waned as the country faces several structural challenges: a property imbalance, weakening demographics and geopolitical uncertainties.

The government understands the need to maintain good growth and has started to stimulate the economy. Consequently, if growth rates are maintained, China makes for an attractive entry point into its relatively cheap market.

The Hang Seng Index has halved in value over the last three years and now trades at a 30% discount to its long-term valuation and a 50% discount to the S&P 500.

SA is all about the election

Could this be a watershed year for SA, as we desperately need political change? It’s highly likely that the ANC will lose its national majority, which was 46% in the 2021 municipal election, down from 58% in the 2019 national election.

Polls vary significantly from 46% to 39% for the ANC, pointing to a likely coalition government. But who will partner for coalition? It will ultimately depend on what percentage of the vote the ANC receives.

Brenthurst Foundation election poll

IPOS election poll

The political landscape is changing quickly, and a lot can happen before mid-year when voting is expected. The new MK party with Jacob Zuma, will not be a major force, but could take away a few crucial percentage points from the ANC.

Voter apathy appears a major risk as voter turnout expectations are low. IPOS forecasts a 50% to 45% turnout, well below the last national election of 66%. This would mostly prejudice the larger parties.

Fears of an ANC / EFF coalition are real, but with Ramaphosa at the helm, it appears highly unlikely. The lower the ANC percentage vote the better, in our opinion, which could force a DA coalition, resulting in the best outcome. This is despite the DA dismissing any chance of an ANC / DA coalition.

SA Economy remains weak

Economic growth for 2023 is expected at a meagre 0.7%, with an anaemic outlook of 1.2% and 1.3% in 2024 and 2025 respectively. Although there are global downside risks, we believe there is more upside potential, as the private sector is being employed to restore the country’s decaying infrastructure. We believe these positive initiatives, provides a more positive economic outlook, off a very low base.

Port privatisation and the new Freight Logistics Road Map will hopefully lead to an improvement in the beleaguered freight industry. But restoration of electricity supply is the key driver of economic improvement in the short-term.

Eskom’s future – the biggest driver of local markets

2023 had record loadshedding, which is estimated to have detracted 2% from GDP growth and shed an estimated 860 000 jobs.

Number loadshedding hours and days

However, the outlook for Eskom is more positive with electricity supply set to improve substantially in 2024. This is supported by a growing private sector solar supply of + 4400MW currently.

Despite the numerous other infrastructural problems, which the private sector is being co-opted to amend, Eskom’s failure is the biggest deterrent to foreign investors. Any positive signs of improvement should drive up local share prices materially.

The Rand is expected to remain range bound

The Rand/Dollar has retraced from its spike to 19.8 in June and has settled into trading range around 18.5 at the end of the year.

Our Rand/Dollar fair value is 17.8, which is a 25% risk premium above purchasing power parity of 14.2, due to SA’s weak economic outlook, rising debt and dysfunctional ANC government.

We expect the Rand/Dollar to be range bound between 19.0 and 17.5 for 2024, barring an unfavourable election result, such as ANC /EFF coalition.

The Prosperity Fund continues with good, stable returns

The Prosperity Worldwide Flexible Fund of Funds, managed by Investonline Director, Nick Brummer, is a conservative fund with an emphasis on capital preservation. Over the last two challenging market years, the fund has returned an average 9.8% p.a. (net of fees). Since inception (9 years) the fund has returned an average 9.1% p.a. (net of fees).

The fund is well suited to investors who want offshore exposure and a steady investment return.

Investment Market Outlook

Global markets are currently pricing in a soft landing, i.e. no recession, and a 1,5% interest rate cut in the USA in 2024.

Numerous global uncertainties this year are likely to lead to volatile markets. However, global investment markets are generally attractive, given the likely decline in interest rates. But certain markets offer more value, such as Europe, UK, Emerging Markets and SA equities, and broad-based global and local bonds.

SA equites are particularly cheap per their 20-year low P/E valuations and even more so with interest rates likely to decline in 2024, which will provide a boost to consumer and business spending.

JSE All Share Index P/E ratio

In the lead up to the election investors are likely to be cautious with probable market volatility. This should provide further attractive entry points into the market.

Review your Investment Strategy

Ensure that your investment portfolio remains properly balanced and adjusted to suit your personal risk profile to achieve your goals. Check that your financial plan is up to date. It is critical to ensure that the risk you take in your investment portfolio matches your financial plan, especially when nearing or during retirement.

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