As we look to the year ahead, the world feels as uncertain, if not more so, than in 2023. Economic headwinds and geopolitical conflict look set to persist, likely bringing further volatility for financial markets. Yet it’s not all doom-and-gloom for charity investors, and there are several reasons for optimism. Here’s a take on some of the key investment themes for 2024.
Lower growth and lower inflation
Most leading economies (bar China) were surprisingly resilient last year, avoiding a widely anticipated recession. While such risk remains a hot topic of debate, a major downturn seems unlikely this year. However, with a stronger base to start from, global growth should slow in 2024. The pace of economic expansion is likely to diverge, with emerging markets – especially India – faring better than developed ones, where the effects of higher interest rates may worsen.
Inflationary pressures are also set to ease, albeit gradually. This could allow the major central banks to cut rates earlier than many expect this year, following the last year’s raft of aggressive hikes. However, with growth still holding up well, especially in the US, a rapid shift in policy seems unlikely. That said, investors should be careful of what they wish for, as rate cuts may only materialise if economic prospects deteriorate.
Geopolitical uncertainty
In addition to uncertainty around growth and inflation, several other risks face investors. An increasingly fraught geopolitical backdrop, including conflicts in Ukraine and Gaza, remains a key one. The recent flare-up of tensions in the Red Sea, for example, is hitting global supply chains, which in turn could affect inflation dynamics.
Meanwhile, both the US and UK will hold major elections in the next 12 months, and speculation around the potential winners and their likely policies will intensify through the year. Whether facing elections or not, government policies will probably come under more investor scrutiny, amid growing concerns about burgeoning debt levels.
Additional risks to navigate
Beyond the macroeconomic or geopolitical risks, two others are worth considering. The first is around irrational investor psychology. Financial models are built on the premise of ‘rational agents’ that aim to maximise utility. Yet decisions are very often influenced by emotions, such as fear or greed, which can lead to detrimental behaviours or biases.
The second risk is climate change. Addressing this critical challenge requires a systems-wide transformation in economies. For investors, the disruption and growth prospects likely in this once-in-a-generation shift should create both threats and opportunities to navigate.
Reasons for optimism
While it may be hard to get excited about countries’ growth prospects, it’s worth remembering that investors do not invest in the economic performance of a country or region. What matters is how markets – and specifically portfolio assets – react to macro- and micro-developments. Quality, well-run companies do not necessarily stop being so because of high inflation or anaemic growth. And there are still plenty of opportunities for investors – whether at the sector, region, market or security-specific level.
It’s also important not to underestimate business’ ability to adapt. Corporate balance sheets generally remain healthy, and successful companies continue to innovate. In particular, artificial intelligence is being rapidly adopted, and the effects of it could start to be seen more in employment, productivity and profitability trends.
Staying invested
In troubled times, holding cash can feel more comfortable than investing, especially with the higher rates now available. However, it’s unlikely to be the best long-term solution for charities looking to maximise asset valuations and boost activities for their causes. A well-diversified investment portfolio can help mitigate the impact of short-term volatility, and help charity investors achieve their long-term goals.
Julien Lafargue is chief market strategist and Olivia Lewis is a private banker in the charities and not-for-profits team at Barclays Private Bank.
Barclays Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register No.122702) and is a member of the London Stock Exchange and Aquis. Registered in England. Registered No.1026167. Registered Office: 1 Churchill Place, London E14 5HP.
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