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NEWSLETTER

Don’t predict – prepare!

2024 is set to be one dominated by politics with half the world’s population going to the polls, including the UK and US which haven’t shared an election year since the 1960s.

Joining the two superpowers at the ballot box are voters from the world’s largest democracy, India, alongside Taiwan; Pakistan; Indonesia; Mexico; Russia and South Africa.

Under normal circumstances, elections are characterised by promises of extra spending, but this year’s unprecedented level of political activity takes place against a backdrop of higher borrowing rates and rising inflation.

For emerging markets this is particularly relevant since sudden increases in government spending during this global election cycle could further elevate interest payments for many countries, which in turn leads to market volatility.

This does not prevent a slew of fund managers from espousing the investment opportunities for the developing regions, arguing that possible rate cuts from the major developed central banks, alongside the avoidance of recession, will work in the emerging markets’ favour.

Charles Jillings, Portfolio Manager of Utilico Emerging Markets Trust, tells us he is “increasingly excited by the prospects for emerging markets in 2024”.

“Whilst some emerging market countries have already marginally reduced interest rates, further cuts are likely to come in 2024 as real rates in the majority of emerging markets are now typically positive, inflationary pressures are under control and these markets are becoming more robust to external shocks,” he says.

The political agenda will also likely be influenced by the climate change debate.

Again, this has ramifications for investors who need to make a call on whether future administrations will dial back on their net zero promises – see the UK for example – or drive forward towards the green transition.

As Erika Bruce, Senior ESG Associate at Moody’s, tells us: “Green technology and disruptive innovation will increasingly drive investment and business decisions in sectors most exposed to carbon transition, but lacklustre economic conditions and geopolitical strains will pose hurdles to net zero ambitions.”

She adds: “Businesses and financial institutions will navigate a complex ESG policy landscape, with mandatory climate and sustainability disclosures coming into effect in several jurisdictions, regulatory focus on greenwashing, and a busy election calendar that could result in climate policy shifts and amplify social tensions.”

For investors scratching their heads and wondering how to make the right predictions this year, we have words for wisdom from Jeffrey Cleveland, Chief Economist, Payden & Rygel, who says that “everyone gets a lot wrong a lot of the time”.

Cleveland gives a string of predictions for the year – including a US recession and geopolitical tensions derailing the global economy – and notes that there is every chance these will not come to pass.

Cleveland concludes by quoting Ancient Greek politician Pericles who said: “The key is not to predict the future but to prepare for it”. A sensible position for investors to take in what looks to be yet another unpredictable year.

Gill Wadsworth, Editor

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They have underperformed their developed counterparts for over a decade but if fund manager predictions are anything to go by, emerging markets look set to return to favour this year.

IN MY OPINION

Jeffrey Cleveland, Chief Economist, Payden & Rygel writes that everyone gets a lot wrong a lot of the time.
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