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ViewPoint: Wash, Rinse, Repeat

  •   VanEck
  •   18 January 2024

In summary:

  • 2023 was simple (or not so simple), stay invested but be selective.
  • Fixed income investors eked out a positive as long-end of the curves slumped. Rate gyrations and inflation are still keeping investors up at night.
  • Q4 was all the rage and double digit returns for most risk-on asset classes in 2023 with US equities returning positive 26%. At the bottom of the equity complex was China A shares down circa 12%.
  • We continue to emphasise that in 2024 investors should be selective. Although markets may be pricing rate cuts we think it is all too premature.
  • So where is the future risk? We continue to maintain that the risk is in leverage, insufficient cash flow/assets relative to liabilities in the likes of commercial real estate and other private assets. Wholesale investors will likely bear the brunt of this.
  • EPS forecasts barely factor a recession, earnings yields below Treasury Bonds. Financial conditions are still loose.
  • Where art thou recession? The clouds of gloom have not yet arrived but could towards the back end of 2024.
  • A reasonable outcome may be a mild recession but the macro resilience will continue to challenge fixed income investors and leveraged assets.
  • RBA unlikely to cut rates and more likely to raise. Market overestimating the speed of cuts. Australian consumers to tighten the purses.
  • What do we like in 2024?
  • Exogenous risks remain elevated and even more pronounced. Portfolio hedging is vital. Emerging markets, Gold and gold miners (Gold to break all-time-high of US$2,135), quality and quality international small companies, avoid concentrated bets.
  • Beaten up complexes such as REITs and small caps may present opportunities but importantly, be selective.

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