The 4 massive worries for buyers heading into 2024

Whereas evaluating that 2023 has turned out “much better than feared”, Dr Oliver warned in a latest notice that the fear record stays lengthy as the brand new yr approaches.

The primary of the massive worries highlighted by Dr Oliver is inflation, which he identified remains to be too excessive in most main economies and should drive international central banks to show hawkish once more if it proves to be sticky and holds about their targets.

Secondly, Dr Oliver prompt that the chance of recession stays excessive, reflecting the lagged influence of rate of interest hikes handed all the way down to date.

“It’s laborious to see how the most important fee mountain climbing cycle received’t have a significant influence and the dangers are already evident in tighter lending requirements within the US, falling lending in Europe and stalling client spending in Australia,” he mentioned.

“Not like a yr in the past, many are not frightened a couple of recession which is adverse from a contrarian perspective.”

For the third of the massive worries, Dr Oliver pointed to the excessive dangers round China’s financial system and property sector, with progress within the nation now having “effectively and actually misplaced its lustre”.

Lastly, the AMP chief economist famous that geopolitical threat remains to be excessive, notably as half of the world’s inhabitants is about to move to the polls in 2024, together with the US, the European Union, India, Russia and South Africa.

“The US authorities may have a shutdown beginning 19 January and will have one other divisive Biden versus Trump presidential election, with a Trump victory operating the chance of weakening US democracy and US alliances and one other commerce warfare,” Dr Oliver mentioned.

“The results of Taiwan’s 13 January election may see an easing or an escalation of tensions with China relying who wins; the warfare in Ukraine is constant; and there’s a excessive threat that the Israel-Hamas warfare may unfold, e.g. to Iran, threatening oil provides.”

Nonetheless, Dr Oliver additionally recognized quite a lot of causes to be optimistic in regards to the yr forward, together with ongoing progress within the battle in opposition to inflation.

“Inflation has eased sharply to round 3 per cent in main industrial international locations and round 5 per cent in Australia and is more likely to proceed to fall,” he said.

“Provide chain pressures have reversed; demand is cooling; and labour markets are easing with sharp falls in job vacancies. This consists of in Australia which lagged US inflation on the best way up and is simply doing so once more on the best way down with our inflation indicator pointing to an extra sharp fall.”

Another excuse for optimism, Dr Oliver mentioned, is that AMP has forecast that central banks within the US, Canada and Europe will start slicing charges by mid subsequent yr.

“Whereas there’s nonetheless a excessive threat of yet one more hike in Australia in February, falling inflation ought to head this off so our base case is that the RBA has peaked forward of fee cuts within the September quarter, taking the money fee down to three.6 per cent by yr finish,” he mentioned.

Dr Oliver additionally predicted that, if a recession had been to happen in 2024, indicators at present counsel it’ll doubtless be gentle. Whereas acknowledging that a whole lot of geopolitical dangers proceed to loom, he mentioned that these may not prove as unhealthy as anticipated.

“The US has a powerful incentive to keep away from an escalation within the Israel-Hamas warfare; the stalemate in Ukraine may flip right into a frozen battle – not good for Ukraine however no drawback for funding markets; and elections received’t essentially go in an antagonistic route for markets,” Dr Oliver defined.

In Dr Oliver’s view, easing inflation pressures, fee cuts from international central banks and prospects for stronger progress in 2025 ought to lead to “okay” returns throughout 2024.

“Nonetheless, with progress nonetheless slowing, shares traditionally tending to fall through the preliminary section of fee cuts, a really excessive threat of recession and buyers and share market valuations not positioned for recession, it’s more likely to be a rougher and extra constrained trip than in 2023,” he added.

AMP has forecast that international shares will return 7 per cent in 2024, down from 18.5 per cent within the first 11 months of 2023. The agency expects that Australian shares will outperform in 2024 with a 9 per cent return, up from 5.1 per cent within the first 11 months of this yr.