Webinar highlights: Outlook 2024

Our two-part Outlook 2024 webinar series took place on 30 November and 6 December 2023. In it, we presented our views on what believe 2024 will hold for several areas. Across four jam-packed sessions, we covered our outlook for the worlds of policy and politics, markets, economies, investments and asset classes, both here in Europe and globally. We share the highlights here.

Part 1 – Policy, polls and politics

The series kicked off with an introduction from Steph Butcher, Invesco’s Senior Managing Director and Co-Head of Investments, reflecting on the challenges of the past year.

Session 1 – Policy, polls and politics panel

We then moved onto our first session. Kristina Hooper from our Global Markets Strategy Office spoke to Ashley Oerth, and Andy Blocker and Graham Hook from our Policy and Regulations team about how policy and politics will impact the economy next year.

What is going to happen in the US election is a question lots of clients are asking about. They are concerned about the Federal Reserve trajectory and how that might impact decisions at the polling booth in November.

“What we are likely to see going forward is more signs of disinflation, but also more cooling of the US economy, which should not bode well for voter sentiment around the incumbent president,” said Kristina, host of the webinar. “We’ll likely start to see rate cuts before the end of the first half of 2024. These will have a lagged effect, so it won’t necessarily improve voter sentiment.”

A challenging background is also predicted for the UK and Europe. Ashley said that “2024 will be a continuation of that story of how much economies can withstand.”

Ashley thinks that the UK may lead the way in cutting rates given the country’s relatively weak growth trajectory. Although the eurozone outlook is quite challenged and growth remains rather anaemic, we expect that for the first half of the year Europe will probably muddle along around the zero mark but be in positive territory. A second half recovery is possible, driven in part by central bank policy easing late in the first half or very early in the second half.

With upcoming elections not only in the US, but also the UK, how will the challenging economic environments impact voters on the issues. In the UK, there’s a cost-of-living crisis and the question is will this issue supersede other policy areas such as green initiatives.

“There's a real dichotomy in public support between support in principle for achieving net zero, but then support in practice for the short-term policies that are required to get there,” said Graham. What we see across the public in both Conversative and Labour party voters is there’s still strong support for achieving net zero by 2050. However, this support drains away when it comes to short-term policies that might impact household budgets to get there. The Conservatives have started to row back on some of the policies intended to deliver emission reductions in the short-term, while the Labour Party has maintained its commitment to achieving net zero by 2050.

So, who’s going to win the elections in the UK and the US?

Graham thinks Labour Party leader Keir Starmer will be the next inhabitant of Downing Street.

Andy believes the nominee for the Republican Party will be Donald Trump, while Joe Biden will represent the Democrats. “And until something changes, some existential events, those are going to be the nominees,” said Andy. “Now, there are a lot of people who are upset about it. … But they're going to be the nominees.”

Session 2 – A fireside chat with Jean-Claude Juncker

Our next session was a fireside chat between Jean-Claude Juncker and Arnab Das, Global Macro Strategist at Invesco.

Arnab began by introducing Mr Juncker and highlighting some of his key career achievements. These include being prime minister of Luxembourg for 18 years and president of the European Commission for five years. He’s also considered one of the founding fathers of the single European currency.

The first part of the chat was framed around the European Union and more specifically the challenges its economy has faced, from the pandemic to war to inflation and high interest rates. Arnab asked Mr Juncker how he sees things evolving from here.

“I have to say that the European Union (EU) is entering unchartered waters”, Mr Juncker remarked.

Governments in member states are struggling to reduce deficits, with public debts very high compared to GDP in some states. Growth has also been weak in the area.  

Though there has been some resilience, particularly after events like Brexit and the pandemic, Mr Juncker puts this down to the unity maintained between member states. With the far right becoming more prominent in some areas, the need for an ever-deeper union and greater integration is key. Mr Juncker believes the EU needs to modernise, which will require careful strategy and policy making – especially in areas like capital markets and union banking.

They also touched on the future expansion of the EU. And while it will be essential to integrate more diverse members, like the Western Balkan states, this must be balanced with efforts to maintain unity between existing members.

“20 years ago, we had war in the Balkans. It could easily be that some rifts reappear because divergences between the six Balkan countries plus Kosovo are deep. We cannot admit as new members into the EU countries that have major difficulties amongst themselves.”

On the EU’s post-Brexit relationship with the UK, Mr Juncker wasn’t surprised about the referendum’s outcome. This is because Britain was perhaps more a part of the economic outlook of the EU than the political unions. He was philosophical about the relationship overall though, stating that there’s no ill-feeling.

“So, no revenge, no unfriendly feelings when it comes to Britain. We have to respect the decision of the 23 June 2016, the decision taken by the sovereign people and we have to find ways to keep Britain and the EU close”

Ultimately, the UK is still geographically part of Europe and continued collaboration in areas like research, science, defence and the Erasmus educational programme will be key. Careful reflection on how best to mobilise between the two states will be needed. Going forward, he suggested this could be easier if labour win the election.

On the EU and China, Mr Juncker spoke of the complex relationship between the two. China’s growing influence in the global economy and relatively free access to Europe’s internal market have highlighted that the EU has perhaps been slightly naïve when it comes to trade. To protect the European economy, Mr Juncker remarks that a ‘careful friendship’ which de-escalates risk would be the way forward.

Lastly, the conversation shifted to the upcoming elections next year – the prominent one being in the US, but also those in the UK, Taiwan and Russia. Arnab posed the question of what happens if Trumps wins again.

Mr Juncker believes that of those, only the result of the Russian election is certain.

“In other parts of the world, the outcomes are less predictable, including Britain, although I think that things will change in Britain. In the US, it's too early to say, but it's not excluded that Donald Trump will be the next the inhabitant of the White House”

If this happens, Europe must be prepared Mr Juncker said. Trump has pivoted his attention from targeting foreign leaders (as in his first term) to his domestic rivals instead. It was Mr Juncker’s view that Trump’s knowledge of the EU and Europeans in general, is limited.“We should reopen the channels with the Republicans – not giving them the impression that we are doing this because we do think that they would be the winners of the November elections in November next year but because are respecting that part of the American public opinion that the Republicans represent.”

Part 2 – East to West: a view of the 2024 investment landscape

Session 3 – East v West – which is best?

Our second webinar began with our East v West session. Kristina Hooper was joined by David Chao for a panel discussion on Asian and emerging markets, which have shown an unexpected level of resilience this year, as well as prospects for western markets.

Elections will be front of mind for a lot of the world next year, and Kristina opened the discussion by asking Paul how the upcoming Taiwanese election could impact his model asset allocation¹.

Though investors may be a bit cautious, historically little harm has been done from an investment perspective by an election result. To allay concerns around short-term shocks, he mentioned assets like cash or gold as potential hedges.

In David’s view the incumbent government in Taiwan is likely to remain. Though this is the first time in 23 years that there’ll be a multi-party ballot card, all the candidates support the current Taiwanese status quo. That is – they’re not in favour of independence from China.

Next, the discussion moved to central bank policies, a prominent news headline this year - and western economic outlooks.

“Well, I think we have to start by saying that economies have been stronger than we probably expected. They've been pretty resilient.”

Paul continued by highlighting the fact that despite this, growth in Europe has slumped and recession could become a reality. Similarly in the US, growth has slowed, impacted by several factors. In his view, economies are likely to continue to be sluggish, and given the improved inflation outlook, central banks could start cutting rates toward the middle of 2024. This could boost growth into the second half of the year.

On the prospects for Asian markets, David believes that China’s uneven recovery will likely stabilise a bit next year – thanks to continued low interest rates and fiscal stimuli. Growth expectations for China could sit somewhere in the mid-single digits.

For India, growth has been stronger than in China and could hit the high single digits next year. It could be at the forefront of growth in the wider region going forward.

“So, when I think about growth for the Asia-Pacific region in the coming years, that's certainly going to be the propelled forward by China, but also India, Indonesia and some other Southeast Asian countries”.

Davis said that interest in the Asia Pacific market will continue, though it will be underscored by China and how well its markets can rebound. He also expressed optimism over Japan, and the positive signals happening there. Other regions, including India – especially given the fact that government bonds there have been included in the JP Morgan Emerging Market Index – could also continue to attract investors.

Kristina then pivoted back to western markets, asking Paul to ‘defend the indefensible’ and make the case for investing there.

Paul made the point that economic growth doesn’t necessarily translate to stock market returns.

“Historically, there is no correlation between stock market returns and GDP growth when looking across the world. I think we always have to bear that in mind. It’s always possible in Western countries where growth is less than in Eastern countries, it's possible to have decent rates of return.”

In his view, valuation for government bonds and maybe investment grade looks interesting, given the interest rate outlook, as well as bank loans.

Within stock markets, value is likely to be prominent, and Paul expressed that there’s quite a bit of value in Europe. Markets may benefit from the preference for value-oriented stocks. In real estate, some investors could benefit from falling interest rates and the start of a new economic cycle.

“I'm actually more optimistic now about the outlook for returns than I have been for a couple of years” he concluded.

The session ended with a quickfire question round. Some highlights included where the Federal Reserve’s policy rate will end up at the end of 2024 (David – 5%, Paul – 4%) and equities or bonds in 2024 (Paul – bonds, David – bonds).

Session 4 – A view of the 2024 investment landscape

In our last session, Georgina Taylor, Head of Multi Asset talks to our experts Michael Craig, Stuart Edwards, Simon Redman, and John Surplice about the investment landscape for 2024 for various asset classes.   

Georgina our host, kicked off the discussion with the question on every investor’s mind. Have we reached peak interest rates? And when will they ultimately come down?

There’s a “huge amount of debate” on these topics, Georgina acknowledged, but “one thing that we can all agree on is that we are in a world where the monetary and fiscal backdrop is going to look quite different to what we’ve seen over the past few years.”

Fixed income (Stuart Edwards, Fund Manager in the Henley-based Fixed Interest team)

Stuart thinks the string of aggressive rate hikes from central banks over the last two years have put the “income” back in “fixed income”.

“For once, bond markets and bond investors have their period in the limelight”, he said.

Many investors expected 2023 to be a “bounce back” year for fixed income after the dramatic selloff in 2022. However, the challenging environment for bonds was prolonged after central banks raised interest rates throughout the year as economies proved more resilient than expected.

The market consensus now, though, is generally that interest rates have peaked as the first signs of deteriorating economic growth emerge.  A peak in rates is very good news for bond investors.

In terms of what this means for asset allocation, Stuart believes now is “a period for adding duration”. As interest rates peak, it makes sense for investors to increase the maturity of their portfolios to lock in the current high-income levels.

Stuart and his colleagues are keeping a close eye on the credit profile of their portfolios. As economic growth slows, we are leaning towards issuers with better ratings.

Real estate (Simon Redman, Managing Director of Invesco Real Estate)

In real estate, the past years headlines have focused on the price volatility that rising interest rates have created. But Simon sees a flipside to this.  

He thinks rising interest rates have prompted a repricing in real estate markets. This has enabled investors to buy high quality properties at bargain prices, but it has also created an environment which is conducive to rental growth.

Having an environment of higher interest rates can be a benefit, said Simon, as it “constrains new development”. In turn, that pushes up demand and, “when there’s demand, rents go up”.

Private credit (Michael Craig Senior Portfolio Manager in our Senior Secured Bank Loan Group)

Higher interest rates over the past year have created a positive time for private credit – a floating rate asset class.

As interest rates have gone up, the income received by investors has increased in parallel. This, combined with other factors, has resulted in returns of 10+% in assets like broadly syndicated loans (a subsection of the private credit universe).

The economic environment has also been supportive for the asset class, said Michael Craig. “The economy has been much better than a lot of people expected, [and…] companies have been able to pass on the cost of things like price and wage increases [to the consumer]”. That has offset the impact of rate increases, he said.

Going forward, Michael’s outlook for the asset class remains positive. The level of income investors are earning could fall slightly if central banks decide to ease rates later in the year, given the floating rate nature of the asset class. However, the most likely scenario for now seems to be a “higher for longer” environment.

Equities (John Surplice, Co-Head of European Equities)

The biggest driver of equity market volatility in 2022 and 2023 has been inflation and interest rates.

This means that we could see “a much more positive backdrop for equities going forward”, John outlined, if markets have now “priced in that inflation outlook”.

John pointed out that the market sentiment around equities has not been positive since Russia invaded Ukraine in February 2022.

“The investment environment has felt like a bear market, even when markets have been going up”, he said. However, “negative sentiment is not usually a good indicator of future returns”, he flagged.