2024 Market Outlook

After a challenging 2022, the investment landscape improved in 2023, thanks in part to a slowing of inflation in developed nations, which saw most global central banks end, or signal that their interest rate hiking cycles were over.

The prospect that interest rates may have peaked was good news for equity markets, which saw many global share markets post double-digit gains. And in fixed interest, after a challenging start to the year, a strong second-half saw most bond markets finish with gains.

As we look ahead to 2024, we see several challenges, but as always – plenty of opportunities. Here are some of the key themes we expect this year.

Over the past couple of years, bonds have experienced some of their weakest periods on record, struggling against the backdrop of decade-high levels of inflation that saw interest rates surge in most developed nations.

However, looking ahead, we believe the outlook for fixed interest investments is much brighter, and the global economic backdrop should favour defensive assets such as bonds.

The outlook for 2024 is looking like a shift towards slower growth, and the increased likelihood of the global economy falling into a recession.

One of these drivers will be an easing in labour market pressures. The consumer, notably in the US, has been a key contributor to global growth, and we believe as the labour market eases, the US consumer will pull back on spending that will eventually lead to slower growth.

Since central banks around the world began lifting interest rates to curb inflation, the New Zealand economy has been one of the laggards on the global stage. In fact, economic data showed the economy contracted in the three months to September 2023.

As we head into 2024, we believe the slowdown will continue, which will tip the economy into a recession and lead to the Reserve Bank of New Zealand (RBNZ) cutting interest rates.

From an investing standpoint, 2023 was an excellent year for investors. With double-digit gains in many global equity markets, diversified portfolios were able to deliver positive returns.

However, it was a year that posed many challenges outside of the investing world – many of which will continue into 2024. Inflation eroded many households’ wealth and drove up the prices of essential goods and services. This was particularly evident for New Zealanders, who dealt with further pricing pressures following Cyclone Gabrielle early in the year.

Meanwhile, the conflict in Ukraine is showing no signs of ending, while the onset of the Israel-Hamas war has created a devastating humanitarian crisis.

Society will face further challenges in 2024. Countries with more than half of the world’s population will see their citizens vote in general elections, with all eyes likely to be on the 2024 US Presidential Election.

Nevertheless, amongst these challenges, there is plenty to be optimistic about. The rise of Artificial Intelligence (AI), though still in its early days, has the potential to bring about positive change in society. For example, in 2023, research centres in the US had success using AI to detect cancer – a potential gamechanger for the medical industry. AI is starting to improve productivity for many businesses – from customer support, software development, testing and automating routine tasks.

Meanwhile, the ongoing work in the responsible investing space, and the various commitments countries are making, can only be positive for the future.

Finally, one thing that will not change is our approach to investing. We aim to invest in high-quality companies, while placing significant importance on ESG (environmental, social and governance) factors. By doing this, we will put our investors in the best place to be rewarded in the long term.