In 2024, a few select trends could guide investors' portfolio allocation. First, the impact of higher interest rates that has not yet been fully reflected in growth and some shortages of commodities and consumer goods that could continue. In addition, governments will need to commit considerable resources to reduce reliance on fossil fuels and transform the economy in order to meet climate goals. Finally, rising life expectancy and changing consumption patterns should also create real opportunities.
“2023 was a year when we finally saw inflation rates fall from historic highs. Stock markets managed to advance on the back of a surprisingly resilient global economy, in the face of short-and long-term interest rates rising to multi-decade highs. Even though interest rates will continue to have lagged knock-on effects across the economy, investors can now take advantage of attractive risk-free rates of return not seen since the 2008 financial crisis.” says Edmund Shing, Global Chief Investment Officer, BNP Paribas Wealth Management. “Moreover, the will to reduce our reliance on fossil fuels and the permanent evolutions in lifestyles after the pandemic are creating new investment opportunities in the Healthcare and Energy sectors.”
INVESTMENT THEMES FOR 2024
THEME 1 – Reaping real returns
Since the end of 2021, the interest rate world has undergone a seismic shift. What was judged safe up until 2022 may not be so secure in future, given rising debt costs, and thus concerns over long-term debt sustainability. Positioning to profit from real bond yields (excluding inflation) that are the highest since at least 2011 is an attractive choice for conservative investors, in order to lock in a generous inflation-protected level of income for the next few years.
We see investment opportunities in:
- Sovereign bonds: US Treasury Inflation-Protected bonds, US sovereign bond funds and ETFs.
- Corporate bonds: US and euro investment-grade credit.
- Infrastructure: diversified infrastructure funds with growing yields, energy infrastructure funds and ETFs.
- Structured products: high income solutions based on corporate credit
THEME 2 – Winners in a multipolar world
Today, we observe a shift away from globalisation which will potentially trigger shortages of raw materials and goods. This shift is also powering near-shoring and re-shoring of manufacturing production in order to reinforce supply chains, especially of key strategic industries such as semiconductors. Security of strategic resources is the new imperative.
This environment is allowing enhanced opportunities for investing in:
- Productivity-improving products and services as companies seek the greater use of technology to enhance automatisation
- Robotics and automation in new product facilities
- “Middle power” countries (India, Brazil, Mexico, Indonesia and Australia).
- Technology security: cybersecurity, semiconductors, satellite technology and networks
- Food security and water efficiency – irrigation and clean water production, agri tech and new fertilisers
THEME 3 – Decarbonisation and Electrification
Energy transition momentum continues to accelerate, propelled by a 2023 summer that was the hottest since records began in 1880. The key to energy transition is electrification – allowing us to gradually move away from a dependence on fossil fuels. Government subsidies and regulation continue to play an important role in incentivising the heavy necessary upfront investment in electric infrastructure including power generation, transmission, and storage. Energy efficiency is also a key focus in this transition effort, as it remains far cheaper to economise energy than to produce it.
We see attractive opportunities in:
- Decarbonation: Production and storage of renewable energies, including nuclear and hydrogen, technologies that capture or recycle carbon dioxide.
- Electrification: High-voltage electrical equipment manufacturers, critical metals for electric vehicles and large-scale industrial electricity storage
- Energy efficiency: Insulation, efficient LED lighting, smart control systems, lighting and signalling software, smart glass.
THEME 4 – Democratising AI
Global stock market leadership has become very focused on a very narrow set of mega-cap technology stocks – the “Magnificent Seven” (US mega-cap technology leaders such as Amazon, Google, Meta) - representing a growing concentration risk. The warnings signs from the 1970s Nifty Fifty and the 2000 technology bubble seem to be echoed in today’s Artificial Intelligence mania, centred around those 7 US tech stocks.
We prefer to increase diversification of investor portfolios and look to identify sectors and
industries that can reap huge benefits from AI applications:
- World ex-US stocks including Eurozone, UK, Japan, emerging markets
- Artificial Intelligence “picks and shovels” plays including semiconductors, cybersecurity, cloud computing infrastructure plays, datacentre infrastructure and real estate.
- Healthcare, Professional Services and Industrial Automation.
THEME 5 – Diversify beyond the 60:40 portfolio
The changing environment requires us to review how we construct and diversify our portfolio ; Inflation is eroding investment, volatility could remain high or increase more than the last 20 years, and we can no longer assume that the correlation between long-term sovereign bonds and stocks
will remain negative.
We suggest investors to consider asset classes that can really provide additional diversification to broaden and optimise their portfolio:
- Trend-following and global macro alternative UCITS and hedge funds
- Long/short credit, equity, cross-asset alternative UCITs and hedge funds
- Listed and unlisted Infrastructure funds, ETFs
- Precious metals: gold, silver, platinum
- Enhanced roll commodity funds, ETFs
- Private equity based on an attractive long-term risk-return trade-off
THEME 6 – The wellness revolution
The Covid pandemic, an changing population – the population over 60 will double to 2.1 billion by 2050, and obesity has already tripled since the mid-1970’s – and rising incomes have raised awareness of Wellness. Eating sustainably and healthily, wellness technology, medical technology and innovation in pharmaceuticals including weight loss drugs will create volatility, disruption and opportunity.
We recommend investing in stocks within:
- Selected Pharmaceuticals and Biotechnology/Medical Technology
- Health and Wellness (healthcare technology, health & sustainable food, selected nutraceuticals, consumer and service companies that are well exposed to the Silver surfers)
BNP Paribas Wealth Management is a leading global private bank and the largest private bank in the Eurozone with more than €408 billion worth of assets under management as of September 2023. Present in three hubs in Europe, Asia and the Middle East, it employs over 6,800 professionals who support High-Net-Worth and Ultra-High-Net-Worth individuals in protecting, growing and passing on their assets. The bank aims at building a sustainable future by combining its deep expertise and reach with its clients’ influence and desire for impact.
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