ATTILA KADIKOY: Trends that will shape 2024 global investment landscape

Successful offshore investment requires stability and knowledge of factors that could cause instability. After years of high inflation and supply chain shortages, political upheaval and global conflict, the international economy is now a more predictable investment environment.

Though there are geopolitical events that threaten this stability, the international economy, with the US as its foundation, is in a healthy space.

Inflation is still a factor in the US and world economies. Though it has come down almost everywhere, it is still higher than the target rates of most central banks. In the US it is still above 2%, which means the Fed is unlikely to lower rates, at least significantly, in the short term.

There is a feeling that the US may experience a technical recession this year, but a soft landing is more likely, and this will strengthen stocks and bonds. The yield on 10-year Treasury bonds should stay at about 3.5%, but could drop to 3% if there is a severe recession. Though the equity market has been quite volatile as inflation, jobs and recession expectations have varied, there is a general feeling that stocks are undervalued, perhaps by up to 10%.

The US election is a big factor in the global landscape. Though it will take place in November with the next president sworn in only in 2025, the highly polarised nature of US politics will already have an influence on markets this year. Divisions in Congress and in states will be amplified by pressures created by electioneering.

There will be more than a dozen elections in Europe in 2024, ranging from Iceland to Finland. There are expectations of a possible move to more right-wing politics throughout the eurozone. Though not yet called, Britain may well have an election towards the end of the year, with a good chance of Labour returning after being in opposition since 2010. The terms of Brexit may well play a role in this election.

The Middle East situation is unresolved. Iran’s role in the conflict is becoming more prominent, but there is pressure from most major players for a quick resolution to the situation. The blockade of the Red Sea and tension in the Gulf of Oman have affected the global economy. Saudi Arabia’s role has been rather subdued up to now. It was leading a major regional initiative towards normalising relations with Israel before the present conflict erupted, so the kingdom is probably taking a wait-and-see attitude.

Taiwan is a source of friction in the West’s relationship with China, but for now it is only rhetoric that is heating up. No-one will benefit from military action there. Taiwan’s governing Democratic Progressive Party won a third successive presidential victory on Saturday, with voters ignoring China’s warnings that this result would increase the risk of conflict.

There is more tension in the South China Sea, as China, Brunei, Indonesia, Malaysia, the Philippines, Taiwan and Vietnam all compete for the vast reserves of oil and natural gas there. North Korea is increasingly belligerent, and this could threaten its wealthy neighbours, South Korea and Japan.

The Ukraine war is in a winter stalemate. Western aid has slowed due to politics in the US and EU. We can expect the ground war to heat up again in late spring, with new weapons such as F16s that could make a difference, and aid resuming.

Many factors could weaken the dollar in the short term, but the currency should hold steady in the medium term. This is good for offshore investments. Speculation about the demise of the dollar as the world’s reserve currency has been exaggerated. The strength and dominance of the dollar are driven by demand.

Factors such as Brics and sanctions against Russia have brought currencies such as the Chinese renminbi to the world’s attention. But if you trade internationally, you want to be paid in dollars, perhaps in euros, with the pound a distant third. Oil, gold and most other international commodities are priced in dollars as it is the most stable currency, the one that will increase in value with volatility. In 2024 international investors will continue to back the dollar.

China, in spite of its economic size, is still an emerging market. However, its allure diminished over the past few years and it is no longer the go-to investment destination. China’s recovery after Covid has been slow and uneven, while its economy has structural weaknesses. This has hampered its efforts to boost economic growth via increasing liquidity.

China’s population is ageing — by 2040 more than 28% of its population will be over 60. There are problems with its housing and construction sector. More government control has also constrained its hitherto burgeoning tech sector. The country is losing manufacturing to the West and Western-friendly countries.

India is fast turning into a viable alternative to China as the biggest emerging market. India has a huge economy, but its equity market is already getting expensive, so it is more of a market to buy and hold. Other emerging markets are no longer all in the same basket. Some have stronger economies — Mexico for example — and low debt-to-GDP ratios. Brazil is another economy with sound and steady fundamentals, but Argentina’s new government may not be able to solve that country’s economic woes.

• Kadikoy is managing partner of wealth manager Levantine & Co.