Ending 2023 with a bang.
After rallying sharply in November and December, the financial markets ended 2023 in positive territory, partially making up for their 2022 losses. This uptick was driven by the resilience of the global economy and the prospect of central banks loosening their monetary policies. In local currency terms, all major financial markets ended the year in positive territory, with the Japanese, US and eurozone stock markets leading the way. They all gained more than 20% over the year, while the Swiss market and most emerging markets turned in more disappointing performances. Bond markets, real estate funds, alternative investments and precious metals also gained ground in 2023. It was a tough year for Swiss investors. Swiss equities substantially underperformed and the strong Swiss franc, which rose 9% against the US dollar and 6% against the euro, weighed on investments in other currencies.
2024 outlook – falling interest rates to spur an economic upturn
With the exception of the Bank of Japan (BoJ), the major central banks have all finished tightening their monetary policies. This latest series of rate hikes is almost unprecedented in recent history, both because of how sharp the increases have been and because the majority of central banks were in sync in their decision-making. It’s reassuring that these hikes haven’t caused any major economic turmoil or a financial crisis. In view of these factors, and despite the heightened geopolitical tensions, economic output has been surprisingly resilient, especially in the US.
While a recession was averted, economic growth has undeniably slowed. Nonetheless, inflation has fallen sharply and is now nearing central banks’ targets, meaning that monetary policy can start to be loosened. Central banks are expected to take their first steps in that direction by mid-2024. The current economic softness should turn into a rebound in 2024, with both industrialised and emerging economies continuing to grow in 2025.
Most financial assets – but especially equities and bonds – fare well when interest rates are heading downwards, particularly if valuations are at reasonable levels. The 2024 outlook for the major asset classes is therefore bright. Nevertheless, 2023 did end on a real high for the financial markets, which suggests that some of the good news has already been priced in. We’re likely to see a consolidation of recent gains, and that should rein in investors’ optimism and lay the groundwork for a longer-lasting rally. We’ve therefore reduced the equity exposure in our asset allocation grids and upped our cash allocation. This is a temporary tactical decision as we hold out for better entry points.
On the forex markets, the Swiss National Bank (SNB) seems prepared to let the franc get even stronger. The SNB’s aim is to prevent a temporary rebound in inflation at the start of the year, triggered by sharply rising electricity prices and the VAT hike. We are therefore increasing the franc’s weighting in CHF-denominated portfolios and decreasing exposure to the dollar and the euro.
This week’s figure : 43.4%
This is how much the Nasdaq gained in 2023. The US tech stock index, which includes numerous growth stocks, was pushed up by falling interest rates, investors’ confidence in the US economy and the growing interest in artificial intelligence.
Author
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Daniel Varela holds a degree in business administration with a specialisation in finance from the University of Geneva and began his career in 1989 as a fixed income manager. He joined Banque Piguet & Cie in 1999 as head of institutional asset management and with responsibility for bond analysis and management. In 2011, he became head of the investment strategy and Piguet Galland's investment department. In 2012, he joined Piguet Galland's Executive Committee as CIO.
