The S&P 500, a broad index of US stocks, is up around 10% year-to-date (YTD) as of March 25, 2024. This follows a strong year in 2023. Bitcoin, on the other hand, has exploded in 2024, surging close to 300% YTD. The record surge comes after a volatile 2022 that saw Bitcoin drop below $17,000.
Gold has also reached new highs in 2024, rising around 12% YTD. This is likely due to investors seeking a haven asset amid economic uncertainty.
Amidst all this, market experts are saying in the current climate, investors must:
Focus on asset allocation: While the current trends are exciting, it’s important to maintain a diversified portfolio according to your risk tolerance. Don’t chase hot trends and instead focus on your long-term investment goals.
Consider the economic data: The strong performance across these asset classes might not signal smooth sailing ahead. Look out for economic indicators and adjust your investment strategy accordingly.
Don’t invest out of FOMO: Don’t rush into investments out of fear of missing out. Make calculated decisions based on your investment goals and risk tolerance.
Finance Middle East consulted industry experts to understand market trends and identify high-return opportunities. Here’s what they said.
Amer Halawi, Head of Research at Al Ramz
Where to invest?
Equities, bonds (emerging markets), cash
Why?
It’s a bull market in 2024. Many assets are up, and US indices are at their historical high, driven by abundant liquidity and a Fed turned dovish. Emerging market stocks are visible laggards of this uptrend. Interest rates have presumably peaked, a blessing for equity valuations and bond/commodity prices.
Multiple risks threaten this bullish narrative, including geopolitical tensions, unexpected rate fluctuations, or a potential economic slowdown. In fact, the world economy hangs by a thread, and we opt for a balanced approach in this context.
We like equities for their potential capital gains. Emerging market valuations are compelling, especially in the UAE and China. Dubai stocks are blessed with a rare combination of sustainable and transparent growth at inexpensive prices.
We also like emerging bonds due to their equity-like returns but without the risk. GCC corporates and sovereigns offer attractive coupons and improve credit ratings as oil prices head higher. Within commodities, we favour gold as it holds near historic highs after a noticeable breakout and could fare well if risks materialise.
We cautiously allocate only 40% to equities and as much to bonds/commodities. The remaining 20% stays in cash to tap into unforeseen opportunities as they arise.
Georgios Leontaris, Chief Investment Officer, Switzerland and EMEA, HSBC Global Private Banking and Wealth.
Where to invest?
Japanese equities
Why?
Japanese stocks trade at a sizeable discount compared to the MSCI World, whereas their low volatility in USD terms and correlation to global factors boost their appeal from a diversification standpoint. Fundamentally, Japanese corporate profitability is elevated, and while spending is accelerating on both wages and capital expenditures, higher costs are being passed on to consumers. We expect 10% earnings growth, partly thanks to structural demand for AI, digitalisation and automation in response to demographic challenges.
Corporate reforms are expected to unlock further value for shareholders, as companies could face delisting unless they publish and comply with capital efficiency goals. More generous dividend policies and share buybacks should further enhance total returns. A revamped national savings programme should incentivise Japanese households to deploy a portion of their elevated savings to domestic stocks. The Bank of Japan delivered the first policy rate hike after 17 years, whereas investors’ attention is shifting to when the US Federal Reserve will start cutting rates and by how much. The end of deflation and the expected narrowing of interest rate differentials should help stabilise the JPY and offer it room to recover from oversold levels and potential FX gains to international investors.
Manpreet Gill, Chief Investment Officer for Europe, the Middle East, and Africa, Standard Chartered.
Where to Invest?
US, Japan and India
Why?
We expect US equities to continue benefiting from ongoing economic and earnings resilience in what may be a late-cycle rally. However, we would balance this with high-quality government bonds, which offer both:
(i) An unusually attractive yield after well over a decade of very low yields and
(ii) Mitigation against slowing economic growth later this year or next
Gains in Japanese equities likely have further to run amid:
(i) Evidence of shareholder-friendly reforms gaining traction and
(ii) A likely rise in nominal growth as the economy starts to sustain positive inflation and interest rates following the largest rise in wages in over 30 years
Indian equities and bonds are likely to benefit from firm economic growth, rising inclusion in global benchmark indices and likely policy continuity. While valuations are a headwind, we believe this can be mitigated via a slightly smaller allocation (we hold a neutral rather than overweight view), a tilt towards large-cap equities and a balance with government bonds where we also see attractive yields amid rising global benchmark index inclusion.
Michael Bolliger, Chief Investment Officer Emerging Markets UBS Global Wealth Management.
Where to invest?
Diversify your AI exposure.
Why?
AI-related stocks continue to rally in 2024 after robust gains in 2023. In February, NVIDIA became the first $2 trillion AI company by market cap, following another record-breaking earnings release. In our view, big tech’s potential to deliver solid revenue growth and attractive margins should support the sector in the foreseeable future. Despite our benign outlook for big tech, however, 2024 will likely be a year of market rotations, and investors should start positioning themselves so that other market segments can catch up.
Against this backdrop, we would take a barbell approach to optimise the expected risk-reward in an equity portfolio. On the one hand, we maintain a favourable outlook for selecting big tech companies that offer strong scale, robust margins, and competitive execution advantages. On the other hand, we would look to companies that provide access to further potential upside but also help mitigate the risk of corrections, like unlisted AI unicorns and startups. At this point, our focus is on companies that provide access to AI platforms, software, infrastructure and data centres. We also like semiconductor stocks despite their outperformance since late 2023. And third, we highlight diversification opportunities into value stocks, for example, through small and mid-caps, which have lagged the rally. Robust economic growth and the prospect of policy rate cuts around mid-year might act as a catalyst to unlock value in this segment of global equity markets.
Saif Khamis Abdallah Al Maqbali, CEO of Smart Trading Institute
Where to invest?
Mutual funds
Why?
Mutual funds allow investors to invest significant amounts of capital at a low cost and in total transparency. They are straightforward and accessible, making them suitable for both seasoned investors and newcomers. Additionally, mutual funds are managed by experienced professionals who have a deep understanding of the market, making them a reliable investment option. Funds are also easy to compare so investors can make informed decisions based on performance, risk and other factors. As such, they can choose which ones are more appropriate for their investment strategies and which can help them achieve their specific financial objectives over time.
Moreover, funds are liquid instruments that permit investors to enter and exit the market easily and rapidly to be able to adjust their portfolio to react to changing market conditions and capitalise on emerging opportunities. They also allow investors to diversify and spread their risk across a wide range of assets, reducing the impact of any single investment’s performance on their overall portfolio.
Simon Ballard, Chief Economist at First Abu Dhabi Bank (FAB)
Where to invest?
Diversify your portfolio.
Why?
Building a defensive portfolio with a diverse asset allocation and geographical spread will provide investors with flexibility, as market and economic volatility look likely to continue throughout the rest of the year.
Elevated interest rates will continue to impact economies around the world, with cuts only expected in the second half, and could increase volatility along with geopolitical risks as global economic growth is expected to slow down in 2024.
However, regional markets are looking resilient with economic growth expected to increase, driven by successful economic diversification and reforms. This includes First Abu Dhabi Bank’s expectation, as set out in our Global Investment Outlook report for 2024, that the economy of the UAE and Gulf countries will again outpace the global forecast, helped by the domestic multi-year investment cycle in the region.
FAB believes that GCC equities, in general, will be able to navigate the challenges, such as a decline in global inflation and possible interest rate cuts from the US Federal Reserve, and that investors should take advantage of the volatility as an opportunity to invest in the GCC market for a more sustainable return ahead.
Steven Rees, Managing Director, Head of Investments, MENAT, J.P. Morgan Private Bank
“There’s a lot of strength in global equity markets. While we think the year will bring volatility, we think equities can end the year higher with cooling inflation, central bank easing, and strong corporate earnings.
“So, for those investors holding their breath for the next market dip, we think there are reasons to consider getting invested sooner rather than later. Times like these – marked by cooling inflation, solid earnings growth, and Fed easing – tend to signpost a sweet spot for stocks. For instance, inflation regimes between 2-3% usually see the strongest returns for the S&P 500. And we should also see a triumphant return to earnings growth: by Q4 this year, Street analysts expect S&P 500 quarterly earnings to grow at a year-over-year rate of almost 15%.
“What we would say, though, is that market timing can be a dangerous habit – no one has a crystal ball, and while it may feel comfortable to sit in cash, doing so could lead to missing out on opportunities to grow and compound wealth over time. Investing today may feel daunting, especially after a strong start to the year for global equity markets. We suggest phasing in and considering adopting a multi-asset approach – investing in equity and fixed income. We see a lot of value currently in fixed income, which can help smooth out expected equity market volatility and provide downside protection to portfolios.
“In addition, we suggest looking for additional sources of income—global infrastructure, transportation, and certain private credit strategies—to further enhance portfolio yields.
“In the end, making and sticking to a goals-based plan is the most important step.”
Remember, past performance is not necessarily indicative of future results. While current market trends are positive, it is always wise to consult with a financial advisor before making any investment decisions.
