“Digital gold” and European stocks: what to invest in (and what to avoid) in 2024?

Europe Business Observatory takes a closer look at which investments are most likely to deliver returns in the new year, amid various uncertainties in the global economy.

2023 has been a roller-coaster year for markets, boosted by expectations of rate cuts from the US, UK and Europe, global tensions flaring up in the Middle East and, above all, disappointing news from the Chinese economy.

The best bets of 2023 appear to be in the technology sector** led by giants such as Nvidia** and Alphabet capitalizing on the prospect of artificial intelligence, while cryptocurrencies and weight loss stocks also saw huge gains in 2023.

But what is the best bet for 2024?

European stocks and cryptocurrencies are expected to rise, while commodities could be among the most disappointing investments in 2024, according to an outlook by BCA Research. He believes that AI could also lose some of its power.

A mixed global outlook could weigh on investors

One of the biggest drivers of investment decisions this year is when major central banks in the US, UK and Eurozone are expected to cut rates.

“Growth stocks in particular should continue to benefit from this renewed enthusiasm given that they have suffered from the higher interest rate environment,” said Susannah Streeter, director of currencies and markets at Hargreaves Lansdown, Europe Business Observatory.

“Hopes of a softer landing for the US economy could also help companies selling loose products in the US market. However, with the full impact of the interest rate hike yet to be seen, it is still possible that it will be well below the maximum rates.

Others predict a much worse outlook for the global economy, which has grown at around 3% over the past two decades. However, production is expected to decline in the long term as the biggest contributor to the global economy, China, faces a severe real estate crisis in its own economy.

Dhaval Joshi, chief strategist at BCA Research, told L’Observatoire de l’Europe Business that no sector could fully replace the missing output from China’s $100 trillion real estate market, six times the $18 trillion Chinese economy .

“The end of China’s real estate boom means the end of the main engine of global growth,” Joshi said. “So it’s at least 25%, and that’s been the main driver of China’s growth, but also the main driver of global growth. »

The chief strategist expects demand for raw materials to be hit hard by a slowdown in China’s growth. “It’s going to be a much more difficult environment for commodities for at least the next year because the main source of demand is simply not there anymore and the new demand is simply not enough to fill the vacuum from China.

Global decarbonization efforts, which require a lot of metals, could partially offset this loss. At the same time, oil prices are expected to rise in the short term. “Hopes of a soft landing for the US economy have risen (oil prices) and if OPEC+ countries extend production cuts, they are likely to gain more ground,” said HL’s Susannah Streeter.

BCA agrees with this short-term uptick, although it attributes it more to geopolitical tensions in the Middle East. In the long term, they do not see a persistent threat of price increases. “The already low demand will collapse if the price is too high,” explained Joshi.

What does 2024 mean for the US economy?

BCA Research expects a sharp slowdown in growth in the US. This is partly because real interest rates have turned positive over the past six months. The increase will affect companies that previously benefited from negative real interest rates when inflation was above the Fed’s benchmark rates.

The BCA expects the central bank to cool the economy and lower prices. “If you really want to kill inflation and keep expectations anchored at 2%, then the lowest point is not 2, it has to be around 1.5%. And it is very difficult to do that without a recession,” Joshi said.

That could hit both businesses and consumption, which underpins two-thirds of the U.S. economy, hard. Household spending has painted a rosy picture so far, but according to Joshi, the massive influx of illegal immigrants in 2023 has given the overall numbers a false reading.

“While real consumption grew by 2.4%, the population grew by about 1.2%. If you look at per capita consumption, it’s not that good.

If the U.S. economy shows signs of slowing, the stock market could also face a setback, with earnings for some companies deteriorating.

European bonds and stocks could be the winners of 2024

On the other hand, a slowdown in the economy could boost bond investments in the United States, the United Kingdom and the Eurozone. “This is very positive for the bond market in 2024,” the chief strategist said.

BCA suggests in its 2024 report that European stocks could be winners over the next 6 to 12 months. Among other things, Joshi is betting on the performance of healthcare companies that underperformed in 2023. It is also expected to outperform the Swiss MSCI index in 2024, which did not perform well in 2023.

Susannah Streeter of Hargreaves Lansdown said: “High yielding businesses provide a good basis for a diversified equity portfolio. Companies that have taken on a lot of debt to expand are always riskier than those that are flush with cash. Recession risks cloud the outlook. for some European countries this strategy needs to be kept in mind.

The transition from gold to “digital gold”

Cryptocurrencies are undergoing a transformation. They have long been considered a high-risk investment, but investors have recently seen them as a hedge against the risks of events such as a banking crisis, a role that has long been equated with real gold.

“What we’re seeing is that many investors are very slowly diversifying away from physical gold into what I call digital gold,” Joshi said. “It’s also a question of generation. No one over 50 does that. “I don’t like digital gold, anyone in their 20s or 30s says, ‘I’m very, very happy with digital gold. I don’t want physical gold.”” explained Joshi.

How the AI ​​craze could fall

“The AI ​​gold rush will struggle to find gold,” the BCA report says:

Tech stocks banking on the future success of artificial intelligence surged in 2023. However, the report notes that real productivity that contributes to economic growth needs to be demonstrated. The only company that could really benefit from the AI ​​craze is Nvidia, which is “selling picks and shovels” to these companies in the AI ​​gold rush, Joshi said. “But tech companies that buy picks and shovels are trying to find a solution. gold. »

The BCA’s overall recommendation is to keep more investments in long-dated bonds, Swiss stocks and French luxury stocks, but favor less cash (except the dollar, which is recommended) and investments linked to energy or industrial metals.

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