Blackrock 2024 Global Outlook
Here's a short summary what you need to know from the world's largest asset manager going into 2024.
BlackRock has released their yearly global outlook for 2024, as the global leader, their insights indicate a strong indicator of capital movements, government budgeting and industry expectations. Here are some key take aways:
Context
Set against the backdrop of the post-COVID pandemic, the US markets are in a peculiar economic condition. US inflation has fallen sharply and overly 7 million jobs have been created since Jan 2022. This is a significantly higher rate than the typical year.
Despite strong employment gains, the US economy has grown less than 1.8% per year on average post-pandemic. In the short-run, the US has released their 3rd quarter report showing faster growth at 5.9% amidst higher interest rates. These mixed signals have created volatility that is exemplified by the sensitivity of the 10 Year yields reflecting global uncertainty.
Although US unemployment rates are at an all time low, a growing share of the US population is moving into retirement, sharing a global consensus with China and Europe. This is a strong indication of longevity of this incoming issue.
This peculiarity of the US is likely to spark a rise in the cost of global production, worker shortages and with the transition of low-carbon usage, many industries will need hard rewiring. Read on to see how you can take advantage of this.
Lastly, a large concern going into 2024, is the US debt problem. Coupled with slowing of growth, the US could be on pace to pay more on interest payments than programmes like Medicare and could see more social issues as the risk of long term inflation looms.
Driving Trends
The global economy is looked to be set in tailwinds of these 4 main factors:
1. Digitalisation & AI
As AI has taken the world by storm in 2023, 2024 looks to be the year that it solidifies itself as a driving of US profit growth. Blackrock has suggested a top down approach towards the industry, with firm expectations for the industry to grow, Blackrock is looking from firms who can meet global demand in hardware, cloud infrastructure, foundational models, data building, data infrastructure and apps. This is driving their Developed Market Equities strategy as they go in with highest conviction.
I find the AI market to be a strong buy going into 2024, this is expected to be supplemented by global supply and completion of factories in Pyeongtaek (S. Korea), Texas Instruments (USA), and Dresden (Germany)
2. Global Fragmentation
With major ongoing conflicts and, a global rise in inflation. Emerging markets are still connected to the global economy and are looking to be the frontrunners in 2024 with some countries explicitly mentioned.
As the US-China continue to structurally compete, there grows geopolitical risk globally. This has resulted in global supply chains shrinking with US companies retracting from China to pursue other alternatives to set up shop with less geopolitical implication.
Amidst the chaos, Mexico and India stand to earn for global fragmentation the most. The Indian economy has picked up where China has left off and is looking to expedite its growth by making most of global fragmentation. Companies like Apple have announced relocations of some productions to other parts as indicated today. This marks a growing movement of exodus in China that I have talked about.
Mexico’s proximity and labour market is making them a strong choice for the Emerging markets in 2024, with US companies relocating production closer to home.
BlackRocks’ star choice from global fragmentation however, is the Japanese equity market which has exceeded expectations with their low price-to-book ratios and provided a strong and growing Asian alternative to the current Chinese market.
I find this a strong conviction play for allocations looking for a higher yield, emerging markets have directed a larger flow of FDI towards themselves in the recent years and, it is the smart move to hedge both the DM and selective EM markets. I particular, I’m strongly bullish on India’s transition and growth to become the world’s factory, India is likely to take this opportunity by the reins and attempt to never let it go.
3. Low-carbon transition
On the backs of COP28, the world is facing a surmounting pressure for a low-carbon transition despite facing strong resistance in countries like the UK and the Emerging markets.
As one of the key themes in 2023, climate change has caused damage to peoples lives and the economies. In the US, 2023 was the costliest year with the number of events hitting a record high in just 9 months.
BlackRock has emphasised that while news over oil and energy takes the headlines, climate resilliance has become a growing hedge against climate change. While momentum for a low-carbon transition takes place, governments are preparing to prevent widespread damage from climate catastrophes. BlackRock thinks that there is an underlying underestimation in the growing need for climate resilience. Infrastructural developments like flood systems, coastal protections and heat dissipation technology are suggestions that can be looked at
This has highlighted opportunities for the Latin American countries rich in copper and lithium which can significantly aid the low-carbon transition and provide an alternative to the Chinese-dominant rare metal market.
I find that the no-carbon transition is beginning to look attractive as the scramble for market share within the sustainability space carries on.. An eye opener to look out for in the coming years is Argentina as they look to tackle their rocket high inflation and dollarise once again with their newly elected eccentric Javier Milei at the helm. Argentina is currently experiencing the right natural resource boom it needs to potentially rocket its way out of its severe inflationary crisis, Argentina sits on the second largest shale gas reserve and is bountiful in lithium.
4. Opportunities in the Real Estate Market
Lastly, to cap off the global outlook. As interest rate policies heighten, financing private property is looking to be less attractive for consumers. BlackRock briefly suggests that REIT markets are worth looking into. Capitalization (Property Income: Price) rates have risen there was an expectation for both public and private markets to rise. However, the public markets are seen to have performed significantly better than private US core real estate funds over the recent years.
Due to the sheer size of the property market, it isn’t due diligence to throw a blanket term over the entire market. US REIT provide a strong backbone for capital allocation of markets with the opportunity to invest in the properties of the relevant industries above such as data centres and, healthcare.
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