Mahdi's Thoughts
From Half Way Around The World
When it comes down to it, there’s a lot of smart people in this world. LinkedIn just has a way to make them known to all of us. I have the pleasure today of posting an article written by Mahdi Nikpour. It’s a great read and more so Mahdi is a person I’m happy to call a friend and colleague. Look him up on LinkedIn and better yet, give Mahdi’s profile to every one you know; they’ll be happy you did.
Mahdi’s Thoughts
Let's prepare for the opportunities and challenges of global markets in 2024!
2023 was historic for global markets, as bonds and stocks delivered positive returns. The “Magnificent 7's” performance, new rates, economic reopening, and the strength of the global economy excelled despite the post-pandemic challenges, that made the pressure on central banks even greater. Some regions and sectors still lag behind and face headwinds from supply chain disruptions, labor shortages, and policy uncertainty.
So, Will the global economy face a recession in 2024? I expect lower inflation and more balanced global growth. The peak of the post-pandemic rebound is behind us, but I don't expect a sharp slowdown or a contraction of economic activity. Instead expect a gradual moderation of growth, as fiscal stimulus fades, monetary policy becomes less supportive and tensions remains as threats. I can see that recession is still sitting in the room with inflation, just drinking their coffee. They’re waiting for geopolitical tensions to escalate among oil tensions and who knows what else.
How about rates? They are expected to be cut by most central banks in 2024, which could lead to the year of redemption for fixed income markets. Dovish central banks, together with positive earnings momentum, is a good context for risky assets. More supportive central banks can also be good for alternatives, such as private equity, real estate and infrastructure, which offer attractive returns and diversification benefits.
Don't forget the stocks! The stock market rally that happened between the Fall 2022 and September 2023 was very narrow, driven by just a few US mega-cap tech stocks. I expect a bull market in Q1 2024, as the recovery theme spreads to other regions and sectors, such as Europe, Japan, emerging markets, value, cyclical and small cap stocks. But I assume “bears” are waiting there somewhere in 2024 for their huge part to play. As you know, markets are like roller coasters, eh? Geopolitical tensions could be the necessary catalyst for the turn over in 2024 and they are well prepared to do just that.
Unexpected conflicts and surprises remind me that we navigate through a world full of unexpected events, whether they are on the geopolitical, macroeconomic or market side. Academically speaking that’s “systematic & non-systematic” risks; you choose.
Key geopolitical developments that could affect the global outlook in 2024 are:
- The global elections super cycle: More than 60 countries will hold national elections in 2024, including the US, China, India, Russia, Brazil, Germany, France and Iran. These elections could have big implications for domestic and foreign policies, as well as for regional and global stability. The outcomes could also influence the direction and pace of multilateral cooperation on issues such as climate change, trade, security and human rights. Talking about rights, can you smell the love of right movements in the air? After all, roller coasters are there, whether in the markets or in the political views of voters around the globe. This might reduce tensions or escalate them, who knows?
- The geopolitical landscape in 2024 will be shaped by the rise of multiple centers of power and influence, as well as by increasing competition and conflict among them. The US, China and the EU will continue to shape the global agenda, but other actors, such as India, Saudi Arabia, Turkey, South Africa and Brazil, will undoubtedly assert their interests and values. Smaller countries and various non-state actors will also try to exploit the gaps and opportunities in the international system. The result will be a more complex and fragmented world, with less predictability and more volatility.
No one can predict conflicts, nor do I have a crystal ball, but I know that I should keep an eye on Ukraine, the Middle East, Taiwan and so should you.
- The de-risking of global supply chains is evident. The COVID-19 pandemic and the war in Ukraine exposed vulnerabilities and interdependencies of global supply chains, prompting governments and businesses to rethink their base sourcing and production strategies. In 2024, more efforts to diversify, localize and digitalize “supply chains”, as well as to enhance their resilience and sustainability will take place. However, these efforts will also face challenges, such as rising costs, regulatory barriers, geopolitical tensions and cyber threats.. China's not happy with its proscribed local supply chain theory announced earlier by Biden and is threatening world's largest semiconductor producer Taiwan while the US is allegedly standing in the way.
- The emergence of new technologies is inherent. AI, the darling of 2024, will emerge as the latest new issue motivating geopolitical competition and regulatory dynamics. AI will have huge implications for economic development, social welfare, security and governance, but also raise ethical, legal and moral dilemmas. As such, AI will become more important for resource extraction, transportation, communication and overall environmental protection. It will also pose risks of conflict, pollution and degradation and the job market, Having AI would significantly reduce costs, including workforce costs and who doesn't like to reduce costs of their business? Some “job cuts” by many large companies already took place in Q4 2023. It’s just getting started.
To thrive in 2024, we need to adjust our business models, trading strategies and plans. We need to monitor and anticipate the geopolitical developments that could affect our trading plans, and prepare for various scenarios as we diversify our portfolios.
I hope you find my insights helpful. Thanks for reading.
In actuality Mahdi, thank you for writing and posting your thoughts. It’s obvious that there’s talent everywhere around the world, you just have to know where to look for it. LinkedIn has the answer. Be well my friend and a happy, healthy year to you and yours.
Dan Fogelberg was really great, wasn’t he. From “Leader of the Band”, a song I swear he wrote about me and my Dad to this one, “Same Old Lang Syne”, he was tremendous in his talent and reach. I always have to sit back and ask myself what the hell is wrong with this world? Why are there wars, conflict and chaos. We’re just paying the price of the Military Industrial Complex exactly as Eisenhower warned. It’s time to stop. It’s time to learn how to make peace. It’s time to listen to people like Mahdi. Happy new year everyone; may there be peace and harmony throughout this world.