With such a surprisingly strong finish to 2023 what can investors expect in 2024? Investment returns for last year were much better than expected. The typical diversified portfolio holding around seventy per cent in growth assets earned double digit returns.
Shares in Australia produced about 13 per cent including dividends paid, while overseas shares returned 22 per cent for the year. Investors who chose to keep their money in the bank last year earned around 5 per cent.
Bank deposit rates have come down slightly but still offer 4.5 to 4.8 per cent for 12 months. That looks attractive. What is the outlook for shares, property and managed funds?
Financial markets look ahead. Both fixed interest and share markets are pricing in lower interest rates to come. Rates are now peaking after the big hikes of last year and that will help lift other investments.
Rates have definitely peaked in the US. Traders are expecting the first rate cut in the second quarter. The Federal Reserve says ‘not so fast’, but isn’t denying cuts are coming. In Europe rates have likely also peaked with inflation falling.
UK interest rates have topped out. The economy is slowing, retailers had a weak Christmas, and unemployment is rising. The country may already be in a mild recession. The first Bank of England rate cut cannot be too far away.
Australian interest rates have probably peaked too. We will know more when the December Quarter CPI is announced on 31st January. Our inflation is proving sticky. Even if there is one more rate rise to come, we should still see the first cut by year end.
Lower rates mean lower borrowing costs for businesses, lower loan payments for mortgage holders and extra income available to spend. We need to see some slowing of the economy near term to squash inflation, a negative for profits, but lower interest rates will be stimulatory after that.
China’s economic recovery since Covid has been slow so our mineral exporters are seeing slower sales short term. However China will recover and the global economy will return to balance, benefiting our producers longer term.
Artificial intelligence is expected to improve productivity across many industries and boost technology companies especially.
Stock market listed property had a good 2023 and that should continue with lower borrowing costs ahead. Direct commercial property saw values written down last June. Rents are rising and it too will benefit from lower rates.
Setbacks are inevitable but there are opportunities and positive influences at work. This year should see sound returns for investors once again.