Despite inflationary pressures and higher interest rates, the global economy continues to remain strong and is set for a strong finish in 2024, a new report has said.
“Despite global inflation not falling as quickly as forecasters may have hoped, the global economy looks remarkably strong, defying the pressure of higher interest rates,” said Grace Peters, Global Head of Investment Strategy at J.P. Morgan Private Bank.
Releasing its 2024 Mid-Year Outlook, ‘A Strong Economy in a Fragile World’, J.P. Morgan Private Bank highlighted five key themes to navigate the global economic and investment landscape.
“The world is at a delicate juncture. On the one hand, higher growth, higher bond yields and higher equity valuations. On the other hand, higher inflation, higher geopolitical risks and potentially higher taxes. Despite these challenges, we think positive forces can power markets forward in 2024. The global equity rally can broaden beyond the U.S. and mega market cap stocks,” said Peters.
Global economy remains strong
While the US Federal Reserve continues to hold steady until inflation falls further, other central banks have started to cut rates.
“We think policy easing will support global risk assets. Unlike the 2010s — but similar to the 1990s — policy rates should stay above the rate of inflation,” said Jacob Manoukian, U.S. Head of Investment Strategy at J.P. Morgan Private Bank.
Additionally, household spending, particularly in the U.S., continues to be strong, which is good for companies, who are turning sales into profits.
“A particular area of focus being on AI (artificial intelligence) where the impact on growth could be substantial – perhaps even transformative – with evidence indicating that the AI productivity boost may appear in U.S. economic data by the end of the 2020s,” he added.
Some uncertainties remain
“While our market and economic outlook is constructive, we acknowledge two main sources of uncertainty – geopolitical risk and the U.S. election,” said Thomas Kennedy, chief investment strategist at J.P. Morgan Private Bank.
Certain sections of the market such as small and mid-cap equities, the U.S. dollar and clean energy companies could be more sensitive to the US election, the research noted.
As far as geopolitical risks are concerned, investors with concentrated exposure were likely to be at greater risk than those with globally diversified portfolios.
“Investors can look to equities to harness global growth, real assets to hedge against inflation, and bonds to offer income and mitigate risk if economic growth falters,” the report said.
Corporate Europe takes a turn
With rising dividends and share buybacks, European companies are embracing a structural shift to become more shareholder friendly. This trend is accompanied by improving economic fundamentals in the eurozone, with consumer health looking positive, a strong outlook for corporate profits, and rate cuts underway.
“We expect investors to increasingly recognize that leading European companies, the region’s ‘national champions,’ sell to a truly global consumer base,” said Erik Wytenus, Europe, Middle East and Africa Head of Investment Strategy at J.P. Morgan Private Bank. “They can benefit from a global economy that has weathered a higher interest rate environment better than many had expected. We think the European economy will remain resilient over the coming year.”
Japanese stocks: This time is different
Japan has welcomed inflation with nominal economic growth moving higher. At the same time, corporate governance reforms are now strongly encouraging a structural change focusing on efficiency and profitability, resulting in companies returning more value to shareholders than ever before.
Unearthing profits from critical raw materials
Latin America has long capitalized on its natural resources and mining accounts for most of the major countries’ trade balances, with this secular opportunity increasing the potential for further export growth. Surging demand will exacerbate an already tight mineral supply expected for the coming decade.
“For global investors, Latin America’s equity markets currently offer solid earnings and attractive valuations, both relative to global peers and their own histories,” said Nur Cristiani, Latin America Head of Investment Strategy at J.P. Morgan Private Bank.
For more economy news, click here.
