Reza Hendrickse, Portfolio Manager at PPS Investments
The investment landscape has been a rollercoaster in recent years, with uncertainties challenging both investors and wealth managers.
Looking back at 2023, a pivotal year for global economies, I would like to unpack a few standout events that impacted investment decisions and outcomes, exploring key themes, uncertainties, and the outlook for 2024.
2023: Resilience Amid Surprises
One must note the surprising resilience of both local and global economies in 2023. Contrary to initial expectations of a potential recession in the US, economic growth exceeded projections, providing a green light for markets. Notably, the tech sector, driven by artificial intelligence, emerged as a major player, contributing significantly to global equity performance. A defining characteristic of the year was the rapid increase in interest rates, sparking questions about the top of the rate cycle and the possibility of further hikes.
Navigating Uncertainties in 2024
Given the diverse factors influencing markets in 2023, the question is whether it is feasibility to predict market movements in 2024. I can start by acknowledging the macro-driven environment of the past year and emphasising the continued dominance of macroeconomic factors such as growth, inflation, and interest rates. While predicting the growth outlook for the coming year, there seems to be a consensus view of a potential slowdown, with uncertainties persisting. The central focus will be on how central banks respond to the inflation trade path, shaping investment strategies for cash, bonds, and equities.
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Micro View: South Africa in Election Year
Shifting to the South African microenvironment, we are entering an election year that will impact the economic landscape. Despite challenges such as load shedding, rising interest rates, and SOE issues, there I see optimism about economic growth accelerating in 2024. The looming elections may introduce short-term economic benefits, with the ANC expected to maintain dominance, albeit potentially with a reduced majority. While acknowledging long-term concerns such as rising debt levels and credit rating downgrades, a window for positive surprises in the South African economic outlook remains.
Global Geopolitical Risks: Navigating Unknowns
Moving to global geopolitical risks, with a focus on the Middle East and the tensions between Ukraine and Russia we must acknowledge the unpredictability of geopolitical events and their potential impact on markets. This highlights the difficulty of forecasting such events and highlights concerns about the growth story. While cautiously optimistic about South Africa, the global economy may not have fully experienced the effects of higher interest rates, signalling potential challenges ahead.
PPS Approach for 2024: Cautious Stance
As a summary of PPS’s approach for 2024, we will follow a cautious stance, with portfolios modestly underweight in risky assets. This caution is grounded in uncertainties surrounding the growth outlook, potential interest rate hikes, and inflation resurgence. The approach extends globally, with underweight positions in foreign equities, overweight positions in global bonds, and an emphasis on holding cash. PPS’s investment style focuses on a longer-term view, strategic asset allocation, and manager selection to navigate the complexities of the evolving investment landscape.
In closing, I have a nuanced perspective on the challenges and opportunities that lie ahead in 2024. As markets remain sensitive to macroeconomic shifts and geopolitical uncertainties, a cautious and strategic approach becomes imperative for those navigating the intricate world of investments.