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In focus: 2024 equity outlook

Templeton Global Equity Group is constructive on global equities in 2024. Drivers include the likelihood of a soft landing in the United States, evidence that interest rates have peaked, and an improving economic outlook in China, which appears to be past the worst. Also, sustained inflation in Japan and consensus expectations1 for improved global earnings growth bode well for global equities.

Investment outlook

Consensus expectations are for a US economic soft landing in 2024 as inflation softens and interest rates decline given the rate reductions expected from global central banks. Future rate cuts have become possible thanks to the resilience of consumer sentiment in developed markets, which helped major Western economies avert recessions in 2023. In our view, even allowing for rate cuts over the course of 2024, the cost of borrowing is unlikely to fall back to the lows seen in recent years absent a major economic crisis. Consequently, elevated funding costs will remain a challenge for the weakest businesses. This means the market environment in 2024 should continue to be favorable for bottom-up stock-picking, potentially rewarding investors who are adept at identifying the drivers of value creation.

Market review: December 2023

Global equities built on the strong rally that began in November 2023 and posted solid gains in December to conclude a generally strong fourth quarter and full year. As measured by MSCI indexes in US-dollar terms, developed-market equities slightly outperformed a global index, while emerging market and frontier market equities trailed it. In terms of investment style, global growth stocks posted strong gains for the month but underperformed global value stocks.

Endnote

  1. Source: FactSet. As of January 8, 2024.

 

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal.

Equity securities are subject to price fluctuation and possible loss of principal.

Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls.

International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries.

There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalization, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Taiwan could be adversely affected by its political and economic relationship with China.

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