A new year approaches and the global environment is more challenging, volatile, and fast-paced than ever. With more than two decades of experience providing independent financial advice and managing investments, we know how to navigate the cycles and trends to work out what really matters for you. Here’s our analysis of the investment themes and opportunities that 2024 will bring.
1) Conflict and politics
As global conflicts sadly persist, impacts continue to reverberate around the world. Successful investment strategies attempt to take into consideration the risks of wars and regime changes. With elections on the horizon in both the UK and US as well as many others around the world, there is likely to be market volatility both before and after.
In 2024, the energy transition and the climate will intensify as a battleground, in both the UK and the US. Different parties will take different sides, polarising the environment debate. Oil prices could rise,1 which will further highlight the need for clean energy. Whichever side dominates the climate debate, the demand will nevertheless grow for private capital to support renewable energy, the energy transition, and the green economy.
2) Inflation and interest rates
Despite inflation reductions over recent months, it remains over double the target of 2%.2 Inflationary pressures are likely to continue, bringing a huge impact on how portfolios perform.
The course of inflation will impact the moves that central banks make. Lower inflation should result in lower interest rates, which helps the consumer and benefits markets of all shapes and sizes. It is important to highlight that there is still plenty of talk of central banks keeping rates higher for longer. If the last two years are to be seen as a guide, then one should expect the unexpected.
However, it is worth recalling that in the U.S. in late seventies, high inflation rates were followed by a period of disinflation then a second inflation spike.3 History could repeat itself in coming months. This would lead to more rate rises and increased ‘cost-of-living’ squeeze.
3) Sustainable investing
The sustainable mandate has been through a difficult time as it has struggled from a performance perspective, reminding us of the importance of taking a long-term view.
Now, sustainable investment is coming of age; it has truly hit the mainstream. With maturity, comes integrity, thanks to the Sustainability Disclosure Requirements (SDR), the Financial Conduct Authority’s new regulatory framework on sustainable investing. The SDR aims to tackle greenwashing and improve consumer understanding of the objectives of the fund managers through the introduction of a labelling system. This is a significant work area for us and will continue to be in 2024.
As the climate debate becomes increasingly polarised in both politics and the media, we will continue with our more nuanced and balanced approach.
We are passionate about sustainable investing, and this won’t change. The need to address our planet’s most fundamental concerns is intensifying. As specialists in ethical and sustainable investing, we can enable effective investment in the future of our environment, however the politics play out.
The risk of recession remains despite talks of a ‘soft landing’ in the US (that’s slowing the economy down without causing a recession).
The Bank of England gave a 50-50 chance of a recession for the UK by the middle of next year.4 There is a distinct possibility of recession in multiple countries and regions across the world by the end of 2024. However, on a positive note, following the rate hikes of the past two years, central banks have more in the ‘tool kit’ to handle a recession.
5) Fixed Income
Fixed income is a class of assets and securities that pay out a set level of cash flows to investors. Inflation and interest rates are important in how fixed income allocations are managed – especially with regards to duration (a bond’s sensitivity to interest rates). This is a significant focus for Holden & Partners. We research and analyse this area continuously and will continue to take a cautious approach by not taking big bets on the direction or magnitude of duration when implanting fixed income products in portfolios.
6) Artificial intelligence (AI)
AI is a hot topic and in contrast to this time last year, lots of people have now dabbled with the likes of ChatGPT or tried to engage with a customer service bot – often with mixed success! It still feels like novelty but is increasingly visible in our daily lives. Whilst the long-term prospects of AI are huge, the short-term impacts seem to be overstated. Businesses are often slow to change, so although AI will be gradually integrated, it remains superficial and there is no immediate prospect of mass redundancies.
There is significant talk of Artificial General Intelligence. That is the creation of software with human-like intelligence and the ability to self-teach to carry out tasks it is not necessarily developed for. It’s an exciting area of innovation, but in terms of real-world impact and investments, it’s still a case of watch this space.
A new year
At Holden & Partners, predicting, analysing, and understanding investment themes is a vital part of our planning for the coming year. We look forward to working with you in 2024 for a prosperous, healthy, and green future.
1. Oil Price Forecast: $100 a Barrel Crude Could Return in 2024 on Supply Risk (businessinsider.com)
2. When will we get back to low inflation? | Bank of England
3. Consumer price inflation, historical estimates and recent trends, UK – Office for National Statistics
4. Bank of England warns of recession risk in run-up to expected election next year | Interest rates | The Guardian