(Photo credits: Unsplash – Bruce Mars)
Every new year brings new investment opportunities, but the key lies in your ability to discern the critical elements to maximize these opportunities. In this article, we will explore some investments that may be of interest to you in 2024 based on the evolution of the macroeconomic environment and the risks that may arise in 2024.
What should we be following in 2024 to better understand the evolution of the global macroeconomic landscape?
While many analysts and investors believe that the risks of a recession in the United States are behind us, other economists believe that markets are currently underestimating the likelihood of a higher interest rate environment. Jerome Powell) and its impact on American, but also global, growth.
Although inflation is significantly below the record levels reached in 2022, it remains above the 2% inflation target imposed by most central banks in most advanced economies. This level is considered an acceptable level without negative effects on price stability and economy.
In addition, it usually takes several years for inflation to return to “acceptable levels” after a period of high inflation, especially due to prices of firms’ products or services that remain high or wage/price spirals.
Besides the impact of inflation and monetary policy on the direction of global economic growth, several other risk factors will need to be monitored.
Of course there is the war in Ukraine and the Israeli-Palestinian conflict, but there are also other potential risk factors and geopolitical tensions such as the results of important elections in the United States, Taiwan or India.
The evolution of macroeconomic divergence between various world powers, particularly the United States, Europe and China, may also offer interesting investment opportunities based on cyclical, but also structural, changes in these various regions.
Invest in gold
Gold is generally preferred by investors and savers during times of uncertainty or when the geopolitical environment deteriorates. A worsening of the previously mentioned conflicts could support gold demand in 2024 as new conflicts emerge.
We would think, for example, about trade tensions between the United States and China, particularly in the area of technology, or tensions between China and Taiwan with the January 13 presidential election in Taiwan.
A slowdown in economic growth or a longer-than-expected interest rate environment could also support a rally in the yellow metal.
Finally, gold purchases by global central banks continue to reach significant levels after a record year in 2022, supporting demand for the metal. This trend may continue into 2024 as some central banks seek to wean themselves off spending on the US dollar.
Buy bonds
After recording its worst performance in 2022, the bond market rebounded strongly in 2023 and could offer attractive investment opportunities in 2024 ahead of a possible rate cut.
As interest rates fall, investors who already have positions in long-term bond funds can benefit from further increases in the value of their bonds (in addition to benefiting from larger coupons as rates change).
This dynamic is explained by the fact that bond prices and interest rates have an inverse relationship (negative correlation). So when interest rates fall, bond prices rise.
Investing in artificial intelligence
Investor enthusiasm for the artificial intelligence (AI) initiatives of several major US companies has played a major role in the sharp rise in their stock prices in recent months.
This promising sector could offer attractive investment opportunities, provided the global economy does not enter a major recession.
To take advantage of these prospects, you can look to the big American technology companies like the “Magnificent Seven” (Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia and Tesla).
However, it is relatively expensive and worth considering for smaller companies that can also benefit from the growth of the AI sector. Additionally, small caps have underperformed large caps in recent years.
It is also interesting to note that progress in the field of AI is not limited to the United States. Monitoring the sector’s progress in other major powers, particularly China, may reveal other promising investment opportunities.
However, be careful to consider the increased risk of investing in small caps or overseas markets like China.
In addition to technology companies, other areas of AI application are interesting to consider. The cybersecurity and healthcare sectors, for example, are seeing significant activity in the development and application of smart technologies.
By diversifying your investment choices and considering these different aspects of AI, you can better position yourself to benefit from the development of this technology.
