9 Assets to Monitor and Trade for 2024

Table of Contents

• Introduction
• 1. Stocks
• 2. Cryptocurrencies
• 3. Commodities
• 4. FOREX Currencies
• 5. Real Estate
• 6. Bonds
• 7. ESG/Sustainable Assets
• 8. Infrastructure Debt
• 9. China Assets
• Conclusion

Introduction

The global economic outlook for 2024 is filled with heightened uncertainty as multiple risks threaten to derail the tenuous expansion underway since pandemic-induced recessions.

In the United States, the substantial fiscal stimulus that powered consumer strength and business investment during 2021-2022 will significantly fade over the coming year. Excess savings accumulated by households have already shown declines per Bureau of Economic Analysis data, while corporate earnings growth is predicted to drop from over 8% last year to under 5% in 2024 as per ING’s projections.

In Europe, recessionary fears abound given the region’s elevated vulnerability to energy supply uncertainties and inflation persistently running above 5% as estimated by Oxford Economics. The Eurozone is particularly prone to potential cost-push stagflation due to Russian natural gas reliance combined with rapidly aging populations that constrain workforce growth.

In China, anemic GDP expansion around just 3% this year has sparked urgent interventions from Beijing to bolster the flagging real estate sector which alone accounts for 25-30% of overall economic activity. However, declining developer confidence has led to a growing number of stalled projects, building abandonments, and unfinished properties that continue weighing on market sentiment despite policymaker efforts.

Across both advanced and emerging economies, the overarching risk is that growth slows substantially more than baseline forecasts currently anticipate for 2024 – necessitating greater tail-risk asset management tactics for investors globally.

Our multi-asset investment team holds a below-consensus view by predicting that US and European growth could drop to nearly 1% by late 2024 unless governments deploy additional counter-cyclical measures. With markets poised delicately expecting a resilient “soft landing”, we see risks firmly skewed towards more pronounced downturns that trigger renewed risk asset slides.

Accordingly, our highest conviction strategic recommendation across asset classes for 2024 is a long duration stance to benefit from flight-to-quality inflows combined with selective caution towards developed market equities given their vulnerability to earnings downgrades.

Within this uncertain macro environment, this piece analyzes 9 key tactically traded assets that could enable skillful active managers to not just preserve but grow client capital during the likely turmoil ahead.

1. Stocks

Developed market equities face substantial EPS headwinds from corporate margin compressions driven by stubborn inflation, rising interest costs, and slowing final demand. While 2021-2022 saw blue chip stocks like Apple and Microsoft catalyze Tech sector gains, their stretched valuations leave little room for further expansion once profit growth plateaus.

UBS equity strategists warn investors to limit exposure at current levels based on historical data suggesting paltry index returns during periods of Federal Reserve monetary restraint.

However, certain sectors like energy and financials could provide selective opportunities if the narrative shifts decisively towards global reflation rather than slowdown.

Rather than passive broad market exposures, our quantitative portfolio modeling suggests favoring an enhanced, multi-factor stock screening process identifying resilient companies with pricing power, low labor cost ratios and net cash balance sheet buffers.

2. Cryptocurrencies

The crypto ecosystem enters 2024 significantly wounded from the seismic collapse of FTX - formerly an industry darling valued at $32 billion before evaporating astonishingly fast. While market observers believe much of the carnage has already occurred with leading assets like Bitcoin and Ethereum losing 60-70% at recent troughs, continued volatility is assured given the opacity and lack of regulatory guardrails around digital assets presently.

However, crypto evangelists argue that the exponential pace of Web3 innovation will overwhelm any transient market dislocations. Leading blockchain analytics firms identified over $31 billion of venture funding flowing into crypto/Web3 startups during 2022 despite intensifying bear market pressures.

Developers are actively iterating groundbreaking applications for decentralized finance (DeFi), tokenized asset ownership, autonomous organizations (DAOs), and cryptographically verified identity management across borders. These technologies promise to reshape finance and commerce globally over the next decade even if speculative traders face a prolonged crypto winter through 2024 first.

While risks clearly abound around holding crypto assets with unclear fundamental underpinnings, the sheer pace of real-world infrastructure buildout could spark sudden recovery rallies that deliver outsized upside. Rather than all-encompassing long/short positions, we suggest measured exposure via a “barbell approach” with asymmetric call option structures allowing participation in exponential gains but defined risk management.

3. Commodities

Commodity prices across energy, metals and agriculture face a murky path ahead given their traditional role as pro-cyclical assets vulnerable to demand slumps amid slowing growth, China’s reopening cadence, and the trajectory of the US dollar as a counter-cyclical haven asset.

Oil futures structure shows some encouraging signs like backwardation to three years suggesting prices could stay supported around $80/barrel if OPEC maintains disciplined output quotas. However, investors seem complacent around gas markets where inventories look far too sanguine just as the world could face late 2023/early 2024 demand spike from the delayed impact of China reopening combined with lingering Europe dependency.

We suggest commodity exposures through an enhanced momentum factor frame since macro regime shifts could whiplash prices as the complex interplay of supply bottlenecks, inventory cycles, geopolitics, and currency values play out unexpectedly. Outright long positions seem premature but the optionality value around metals, agriculture and gas futures appears attractively priced to hedge inflation or growth surprises ahead.

4. FOREX Currencies

Few assets experienced as dramatic a rally in 2022 as the US dollar which hit its highest level since 2002 driven by foreign capital inflows seeking shelter from global instabilities amplified by Russia’s war on Ukraine. However, Fed tightening combined with slowing domestic growth could catalyze mean reversion lower for the greenback during 2024.

Much depends on Europe’s recessionary headwinds combined with China’s reopening cadence and Japan’s ultra-loose monetary policy persistence. Further dollar strengthening seems unlikely but its role as a counter-cyclical haven could spark intermittent rallies. In particular, worsening emerging market instability from twin currency and debt crises could renew episodes of intense dollar short squeezes.

Rather then outright long/short positions, we favor using the dollar index to hedge selectively against adverse global spillovers through asymmetric put option structures on EUR and JPY. These structures allow benefiting from potential mean reversion declines while setting exposure limits on counter-trend appreciation stemming from risk-off episodes.

5. Real Estate

Residential real estate indicators face emerging downside risks after nearly 30% cumulative home price appreciation across the US during 2021-2022 sparked affordability crises nationwide. Early 2023 data shows inventory rising, buyer traffic slowing, and time-on-market metrics drifting higher – all signatures of demand tempering from two years of blistering growth.

Surging mortgage rates nearing 7%, elevated rents accounting for over 30% of median wages, soaring apartment vacancy rates and consumers’ worsening purchase sentiment all signal the heated housing market is cooling rapidly.

While outright short positions on housing equities seem premature, put option structures allowing asymmetric exposure to further construction, real estate fund, and mortgage financier underperformance could offer smart tactical hedges amidst the turnover.

6. Bonds

A chief conviction across our multi-asset portfolios is significantly higher bond allocation relative to benchmarks to capitalize on income generation and capital preservation amidst equity risks. While Treasury yields climbed over 4% into 2023 courtesy aggressive Fed tightening, easing inflation data has already sparked substantial curve flattening.

Further moderation in recessionary fears could reinvigorate the decades-long bull trend backing fixed income. And bonds offer portfolio ballast given skepticism from JPMorgan strategists around equities repeating 2019-2022 gains over the next decade amid lower trend growth and higher geo-stability risks.

Beyond plain-vanilla duration exposure, we suggest carving allocation towards taxable municipal bonds, IG-rated corporate issuances under 5 years, and selected emerging market hard currency debt on expectational basis.

Active security selection is key in an evolving rate backdrop - indexes could mask chances to capitalize on risk premium mispricings between state & local government obligations and Brazil/Indonesia USD issuances for instance.

7. ESG/Sustainable Assets

While growth remains stellar with ESG fund assets nearly doubling from 2020 to surpass $2.5 trillion in late 2022, significant controversy has emerged around “greenwashing” allegations and unsatisfactory impact rigor. In 2024, investors focused on sustainability issues need better visibility into measurement methodologies beyond ratings relying on fragmentary disclosures.

Asset managers must integrate exhaustive data assessment capabilities to genuinely drive security issuers towards improved practices on emission abatements, renewable energy transitions, supply chain ethics, diversity enhancements, and alignment with UN SDGs like zero hunger, clean water access etc.

Rather than broad index or thematic exposures, our guidance underscores thoroughly customized baskets blending public and private opportunities like sustainably aligned real estate projects, tokenized carbon credits, and revenue-linked impact bonds prioritizing external audits to confirm social/environmental additionality claims.

8. Infrastructure Debt

With developed nations targeting $1-2 trillion of new infrastructure spending and emerging markets facing a $1 trillion annual shortfall per McKinsey estimates, the investment grade project financing asset category offers unique stability.

Infrastructure debt provides equity-like initial risk premiums before underlying cashflow stability drives significant multiple expansions, enabling double digit return prospects uncorrelated to mainstream risk assets. Diversification values rise further given negligible historical default rates below even investment grade corporates.

Another unique aspect is the potential for direct environmental and social impact beyond financial return, like financing community solar transmission, wastewater treatment plants, green hydrogen capacity etc. With the global economy entering a more challenging period, the defensive nature and literal grounding of infrastructure assets provide true client benefit.

9. China Assets

Despite growth headwinds tied to stringent COVID-19 policies during 2022, new government initiatives like declining mortgage rates for first-time homebuyers, deferred loan repayments from distressed developers, accelerating infrastructure project approvals and guaranteed bond financing for uncompleted housing projects have sparked a reasonable turnaround thesis.

While the property sector remains profoundly challenged with Evergrande and other developers defaulting on $170 billion offshore obligations, the government retains administrative tools to prevent systemic contagion. And interventions like enabling local governments to reduce down payment requirements and households to use provident funds for home purchases signal worst case housing risks are likely contained already.

Other key drivers like urbanization trends, renewable energy investments, electric vehicle infrastructure buildout and middle class consumption growth remain firmly intact backed by hawkish population targets, industrial policy support and the digital ecosystem innovations.

While volatility will plague China markets ahead, sufficiently risk tolerant global investors have recourse for opportunistic exposure both in mainland shares and high-yielding USD bonds from strong state-owned enterprises.

Conclusion

In an uncertain global economy filled with interconnected downside risks, vigilant market monitoring and tactical trading approaches focused on liquid asset classes like currencies, commodities and bonds could enable institutional investors to sidestep pitfalls and amplify performance.

This analysis highlighted 9 diverse assets – from home price indexes to Bitcoin futures to Chinese infrastructure bonds - primed for outsized movements in 2024 based on their sensitivity to monetary policy shifts, geo-political tensions, consumer health and long-term secular disruption trends worldwide.

By integrating correlated signals across stock earnings outlooks, housing inventory figures, cross-asset volatility measures and other leading indicators, multi-asset managers can assemble specialized portfolios navigating fluidly across the market landscape ahead while optimizing risk-adjusted investor returns despite the headwinds.

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