Rate cuts ‘augur well' for 2024

Liam Graham, the managing director of East London’s NVest Securities, is optimistic that 2024 will be the year that investors can bounce back.

He anticipates a market return of 10% to 15% with “a lot less volatility than we have experienced recently”.

“I am predicting a very interesting year for investors.

“If we go back to 2023, we had just been through an 18-month rate cycle across most of the developed world.

“It was probably the steepest round of rate increases we have seen in recent history.”

The increases,  Graham said, had put a lot of people under enormous pressure.

Prices surged for everyday basic goods and interest rates on cars and mortgage rates spiralled, with the resultant debt burden.

People were selling homes and cars. It was the direct result of governments across the globe fighting to control inflation, which got out of hand as a result of the pandemic stimulus.

The good news, he predicts, is that consumers will gradually see the reverse of interest-rate increases with a significant drop in 2024.

“The market is looking for an interest-rate cut any time between March and May, and coinciding with this is that inflation is on its way down.

“It’s an exciting time for the markets.”

SA goes to the polls in May, the US in November and the UK — which has not yet set a date but probably, analysts predict, some time in 2025.

It is mostly bullish sentiment with markets thriving, “but while every country has grey clouds, we have a lot of rainbows”.

“Markets generally perform really well in rate-cutting cycles, so [investment] history is on our side.”

Graham concedes that politics is difficult to factor into the market equation, with the ANC predicted to lose votes and possibly drop below 50%.

But political concerns go broader.

If Donald Trump gets back into power in the US, remembering that he does not play nicely in the global political sandpit, then the uncertain element that he brings to global politics will have spillover impacts on SA.

His personal view on the SA election outcome is that from the investor perspective there will be very few changes.

Most state-owned entities will continue to limp along.

On the upside, the government has shown a willingness to participate in various power projects as private enterprises invest in alternative forms of energy.

“The geopolitical environment is unstable, with Russia and Ukraine on the one hand and Israel and Hamas on the other.

“But that’s simply the environment we have to invest in.

“Think back to 2023 — despite the uncertainty, US markets were up 20%.”

Graham said the property market was one of NVest’s most favoured sectors for 2024, especially the listed groups, driven by declining interest rates.

There was a move away from property and into bonds, but the expected drop in interest rates would see a move into riskier investments with higher returns.

“And that’s the way it should be.”

The US market was led by what investors call “The Magnificent Seven” — Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla — which were on average up 70%.

The market for AI (artificial intelligence) is valued at $1-trillion (about R20-trillion) and companies are responding to this market demand and pushing up productivity.

He said 2024 would  likely be a stock picker’s market but overall, returns of 10% to 15% were not unreasonable expectations.

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