2023 was a roller coaster for global equities - let's hope it's a happy new year for investors

27 December 2023, 09:14

David Buik hopes for a happy 2024 for investors
David Buik hopes for a happy 2024 for investors. Picture: Alamy
David Buik

By David Buik

As 2023 comes to an end, with investors making a brave attempt to support a ‘Santa Rally’, perhaps it is time to reflect on what a ‘roller coaster’ ride of deep-seated uncertainty it has been for global equities!

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Set out below is a table of performance for the major global equity indices year to date – 26th December 2023.

Global indices YTD – FTSE +1.90%, FTSE 250 +2.60%, DAX +18.74%, CAC40 +14.77%, DJIA +13.31%, S&P500 +24.86%, NASDAQ +45.13%, NIKKEI +29.51%, HANG SENG -18.89%, SHANGHAI -6.98%

The imponderables that have dogged investors’ judgement, if nothing else, have been very challenging. Rampant inflation triggering eye-watering hikes in global interest rates, the cost of living, geopolitical conflicts in Ukraine and more recently in Gaza.

Stagflation remains of serious concern in China, with the property market still in a parlous state, particularly with the Evergrande Group embroiled in difficulties, despite government stimulation programmes.

There have been 14 interest rate hikes by the Bank of England to 5.25% and 11 by the FED to 5.25% to 5.5% and the ECB’s stance appearing somewhat less aggressive to 4%.

Read more: Bank of England holds interest rates at 5.25% - keeping borrowing costs at highest level for 15 years

These increases may have brought inflation back on the bridle – US from 9% to 3.2%, EU 11.5% to 2.4% and UK 11.1% to 3.9%. However, they have, unsurprisingly, put the EU in recession and come the New Year the UK might enter a shallow period of recession.

Last week there was an adjustment to UK GDP by the ONS. Apparently, it was judged to have fallen by -0.1% in the third quarter – down from the previous estimate of no growth.

The Sunak government will need to attend to this dispiriting news with some business stimulation packages before the General Election.

GDP for the second quarter was also revised down to zero growth, from a previous estimate of 0.2% expansion, while the latest adjustment to the economy showed it shrank 0.3% in October.

China’s growth is dissipating alarmingly quickly, by their exalted standards, estimated to be growing by only 5.4% in 2023, down to 4.6% in 2024. However, the US may well avoid falling under the plimsoll line and continue to grow modestly to perhaps 1.5%.

Global debt remains uncomfortably high and possibly not sustainable. The total global debt stands at an eye-watering $307 trillion.

The US has seen its sovereign debt increase from $26 trillion last year to $33 trillion, much of it due to the gargantuan Biden infrastructure spending to avoid recession post the Covid pandemic.

The UK’s debt has crept up to £2.7 trillion. In November the UK’s debt cost £7.7billion interest to service - £100million more than a year ago, with rates at a 15-year high of 5.25 per cent.

Given how eventful the year has been, it is surprising that the 10-year gilt yield today has barely changed from where it was at the end of 2022 (same for US Treasury).

This also considers the ambitious Truss plans to stimulate the sagging economy, without the tacit support of the Bank of England and the Treasury, at 3.50%, which saw some borrowing costs hit 6%in the autumn of 2022.

The banking sector also created ripples of concern, with the NatWest debacle and the Credit Suisse and SVB crises this year providing spicy evidence. It has held up remarkably well, but further banking setbacks cannot be entirely ruled out in the future.

Most market observers believe that the path of travel for global equities gets its lead from Wall Street. In 2023 ‘the Magnificent Seven’ – Amazon (+78%), Alphabet (+59%), Microsoft (+58%), Tesla (+137%), Meta (+184%), Nvidia (+244%) and Apple (+54%) saw their joint value ($6 trillion) provide the platform in 2023 – hence the amazing progress made by the S&P 500 and the NASDAQ this year.

Japan’s Nikkei 225 has also been a strong performer, thanks to better regulatory controls, less incestuous inter-company shareholdings and a strong economy. It may continue to prove popular with international investors.

It is generally felt that the FTSE 100 index is an international index and does not act as a barometer for the UK economy. However, its performance has been disappointing this year.

Apart from HSBC (+18% YTD), banks have under-performed this year, as has the mining sector, particularly Anglo American (-41%). Also, British American Tobacco (-31%) has been out of sorts, as has Vodafone (-19%), a country-mile away from where Europe’s number one mobile operator was in its halcyon days in 2000, when the share price reached 526p; today 69.16p.

There have been some winners in the FTSE 100 year to date, with retail, defence, and house builders to the fore – Rolls Royce (+204.92%), Marks & Spencer (+114.21%), AB Foods (+45.43%), NEXT (+37.84%), Sainsbury (+32.95%), Taylor Wimpey (+38.65%), Barratt Development (+36.29%), BAE Systems (+26.8)%, Tesco (+25.72%).

Rolls Royce’s Tufan Erginbilgiç and M&S’S Archie Norman and Stuart Machin and their colleagues have excelled this year and are worthy of special mention. It would also be churlish not to mention Michael O’Leary and Ryanair (+80.93% YTD) – another sterling performance, despite O’Leary’s contempt of Brexit!

The FTSE 250 has also been in the doldrums. This index is thought to be grossly undervalued. With some decent economic news and a return of confidence in the UK internationally, there may be some decent pickings in 2024.

What of 2024? Global equities are really in the hands of the central banks, even more so than the vice-like grip of inflation.

The market tells us that there must be at least three cuts in rates in the US and the UK in 2024 for equities to perform with any aplomb. What was interesting was the appetite buyers had for ETFS on Friday 15th December 2023. In just one session, investors bought $21 billion globally on that single day!

We must assume that ‘hope springs eternal.’ The price of oil will be closely watched, with Brent currently around $80 a barrel. Let’s hope the unrest in the Middle-East and in the Gulf or Hormuz abates sooner rather than later.

2023 has seen a poor market for IPOS even by the US’s high standards. The runes in the sand look more encouraging next year than in recent months.

ARM’s debut in New York was unspectacular, but progress has been made since (+15%). UK companies such as Flutter and Marex may also take their chance in New York in 2024, with greater access to global investors. However, if regulation is eased in the UK, there may well be some great opportunities for many SMES, with the London Stock Exchange and Aquis Stock Exchange salivating at the prospect of an increase in activity, which is currently at a low ebb.

Here in the UK there could also be a change of government. Labour’s schmoozing has been high octane. If elected, let’s hope Labour understands that the ‘City’ is a potential gold mine.

Let’s hope that a Happy New Year is the order of the day!