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The year ahead: opportunities, risks and excitement

Every year brings events that shake markets – but investors who stay cool can come out stronger

China is likely to enter a 'new normal' of lower growth in 2024, UBS executive Michael Bolliger suggests Oriental Image/Reuters Connect
China is likely to enter a 'new normal' of lower growth in 2024, UBS executive Michael Bolliger suggests

Looking at the year ahead, 2024 will no doubt be another exciting year full of opportunities and risks.

After three years of pandemic-related distortions and disruptions, 2023 was supposed to be the year that normality returned. 

But this did not happen: investors had to navigate a banking crisis, another war, sticky inflation, high interest rates and a gravity-defying US economy. 

Nevertheless, 2023 was a year of favourable returns, with stocks powered by the rally in artificial intelligence and fixed income benefiting from high yields. 

A globally diversified 60/40 portfolio in USD terms is up by around 8.5 percent, comfortably outperforming deposit accounts and providing positive returns even after subtracting elevated inflation numbers.

For financial markets, we think three trends will be paramount in the year ahead. 

Global flatness

First, the global macroeconomic outlook is not so rosy: the US economy should slow but avoid recession, European growth should remain subdued, and China is entering a “new normal” of lower growth. 

The Middle East, however, should hold up relatively well, supported by expansionary fiscal policies, especially in Saudi Arabia, and solid growth in non-energy sectors. 

The region may also get a boost from recovering hydrocarbon industries, as we expect the global economy to grow, oil prices to stabilise in a range of around $90 per barrel, and voluntary production cuts to be rolled back partly in the second half of 2024.

Political uncertainty

The second trend is a start to central banks’ rate-cutting cycles. And the third is the likely outsized role politics will have in the year ahead, with the upcoming US presidential elections, ongoing geopolitical tensions and wars.

While these forces make for an uncertain backdrop, we expect equities and bonds both to deliver positive returns in 2024, outperforming cash by a sizeable margin. Investors therefore should get their portfolios back in balance. 

Slowing US economic growth, falling inflation and lower interest rate expectations should mean lower yields, supporting bond and equity valuations, while the absence of a severe US recession should be enough to see corporate earnings grow.

But the room for error is small, and although global economic growth could surprise either way, we think valuations tilt market risks to the downside. 

For this reason, our tactical asset allocation is focused on quality. Quality bonds (i.e., those with higher credit ratings) should deliver both yield and capital appreciation, while stocks with stable balance sheets, sustainable profit margins, and higher returns on invested capital are best positioned to generate earnings in the current environment, in our view. 

We also advise investors to hedge market risks in view of the geopolitical environment. In addition to diversification, investors can consider capital preservation strategies, using alternatives, or positions in oil and gold.

The latter assets are among the most exposed to the risk of an escalation of the war between Israel and Hamas. Although we do not think the conflict will broaden, these may be suitable assets to hedge against the risk of an escalation, especially for regional investors who are exposed to this scenario.

Finally, lower interest rates and elevated price and spread volatility caused by high global debt balances are supportive for various credit strategies, including credit arbitrage and distressed debt.

Looking beyond 2024, the unusual mix of high inflation and high interest rates, together with defiantly low unemployment and robust growth, brings the question of whether we have entered a new macroeconomic regime. The answer to that question will be defined by developments in the “Five Ds”: deglobalisation, demographics, digitalisation, decarbonisation and debt.


Change is afoot and investors should look to capitalise on these shifts in society. We expect some of the highest equity returns in the decade ahead to come from companies that can harness new technologies to develop markets, dislodge incumbents, or slash costs. Successfully identifying these “leaders from disruption” is critical to boosting long-term portfolio potential.

The good news is, we think companies and markets in the Middle East are well positioned to benefit from these trends. We estimate the region’s digital economy can grow from $180 billion in 2022 to $780 billion in 2030, which translates into an annual growth rate of 20 percent. 

This would make the Middle East one of the fastest-growing digital economies globally. The strong growth outlook should provide ample opportunities in segments such as the internet, software (including cybersecurity) and data centres.

Further, private market managers can provide capital through equity and debt investments to support growth areas, including the transition to net-zero, healthcare and infrastructure, as well as AI and digitalisation. In our view, the asset class offers attractive opportunities for investors to gain differentiated exposure to long-term opportunities in exchange for lower liquidity.

Every year seems to bring black swan events that shake financial markets. But time after time, investors who stay cool often come out from these events even stronger. 

The year ahead will bring its share of surprises, but by staying diversified, hedged, and opportunistic, investors can sail through stormy seas and emerge better than before. 

And as tempting as they might look, we expect cash holdings to again underperform a diversified global portfolio in 2024.

Michael Bolliger is chief investment officer emerging markets at UBS Global Wealth Management

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