The Investment Outlook 2024

At an event hosted by Goodacre at America Square Conference Centre yesterday, Chair Graham Shuttlewood introduced four senior fund managers to share their forecasts for markets in 2024 and their thoughts on the wider economic and political landscape – by Richard Latter

 
Each gave a brief presentation with the theme ‘Markets Review’ before coming together for a panel discussion and Q&A
 

Leigh Himsworth, Senior Portfolio Manager, Fidelity

 
Leigh began by considering debt v revenue, stating that the UK as an economy was currently at approx 2.7x but that revenue is unlikely to grow substantially, as it is already a mature economy; the cost of servicing national debt has grown from £29bn in 2018 to £94bn.
As inflation falls, Leigh warned of an ‘overshoot’ in bond and asset prices.
 
Bond yields are coming off (around 4%); we have seen the top of the interest rate cycle and are now looking at interest rates reducing at some point 2024; Leigh also looks forward to the end of political instability after a decade, which has prevented investment from, for example utility companies and builders, that need stability.

He sees the valuation gap in the UK market as significant, and with better liquidity he sees a “once in a lifetime opportunity to buy into the market”

Leigh highlights increased corporate activity, consolidation plus VC money still strong

“Starting to see a light at the end of the tunnel”
 

Roger Skeldon, Head of Real Estate, TIME Investments

Roger told us the TIME is focused on asset based alternative sectors, as long term investors.

Inflation – Roger still sees a lot of uncertainty where it is heading next few years; the range of predictions between -1 and 6% is very wide!

GDP Growth range is either side of zero,  so there is still risk of recession in 2024

In the short term, Roger sees asset values stabilising – there were more transactions in 2020/Covid than in 2023 – and increased forced selling by some as more low cost finance deals end.

He expects to see a narrowing of trust discounts to NAV in 2024.
 

Iain Pyle, Lead Manager, Shires Income PLC and Investment Director abrdn

Iain said that UK income had been a hard sell last 10 years – but UK is still strong for dividends, with significant capital distribution versus other developed markets.

He said the UK is historically super cheap now – an upside of rerating unloved/underrated UK companies.

FTSE 100, with heavier flows, has done OK, but the 250 is particularly dislocated on valuation and has been hit hardest in 2023.

Overall Iain believes the macro looks uncertain, with the potential for a mild recession H2 24; he predicts interest rates will be higher for a bit longer, but that when things pick up, UK small caps startt from an ‘advantaged position’.
 

Sheldon MacDonald, Chief Investment Officer, Marlborough

Sheldon commented that this had been a tough year due to constant, negative news flows.There is still close to full employment, especially in the US, but we could still be looking at global recession, with rising bankruptcies.

In the face of continued volatility, Sheldon reiterated the need to stay diversified.

He said that inflation is still a key focus in 2024, but he sees it falling faster, potentially leading to an unhealthy boom and bust scenario, if interest rates remain too high.

He is encouraged by real wage growth for first time in a long time, and that M&A activity is increasing.
 

Panel discussion & predictions:

 
LH: believes the US outlook is a worry; legislation provided fiscal stimulus, but without it would have actually been quite weak. Monetary stimulus also gone into reverse.

China, managing consumer sentiment and employment is a big challenge in light of the massive property market drop; this was managed to avoid a crash, although that rather drags it out.

The German economy is struggling, including rise of populist movements< The UK in a very good potential position, politically stable and with falling bond yields - 'Don’t listen to Andrew Bailey - he doesn’t know what is going to happen!'   RS: Believes China is a concern, but sees attractive returns in the UK for those that focus on the longer term.

 
IP: Believes 3-4% inflation & interest rates for the next 10+ years are credible; he thinks a Trump win would lead to a China stand off and create global economic concerns.

 
SM: Identified the risk that deflation could lead to collapse of consumption – ‘why would you buy something now, when you will be able to buy it cheaper next month/year – a doom scenario!

He predicts short term political volatility, with 76 elections (half the planet) potentially voting in 2024 – uncertainty would bring market volatility in short term.

Russia goes to polls Q1, guess who is going to win?
 

Investment themes to look for:

• Real estate (massive discounts) but very careful about the office sector
• Asset backed, house builders (maybe away from SE England) – value demonstrated in share by backs
• 888?
• Wine
• Infrastructure – renewable energy
• UK mid caps – defensive that been over sold
• UK banks (more defensive, higher returns than the last cycle – time to buy mid-24)
• Long duration assets

Inflation/interest rates 31/12/24 predictions:

 
Inflation: <2% – 3.5% (caused by government inflationary measures for election)
 
Interest rates 4-4.5% (panel unanimous)

General election

(latest Jan 25) but likely Autumn – could be earlier but likely Conservatives hang on for as long as possible

A resounding Labour victory (good markets if strong majority) – a welcome move back to centralist government

Still risk Labour shoot themselves in the foot!

Rift in Conservative Party, similar to Labour split (Michael Foot / SDLP) in early 80’s
 

Outlook for investment industry in 2024

No IPOs last few years, Consumer duty and regulator threatening an already beaten up wealth management industry

Stop exodus of capital from UK by more collaboration between government and wealth industry – beginnings of a UK Sovereign wealth fund?