UPS report. Economic forecasts for 2024 and entering the “new world”

In 2024, the world of geoeconomics will see big changes – even the head of the investment office at UBS Global Wealth Management calls it “a transition to a new world.”

According to the report, this “new world” will be defined. Economic uncertainty and geopolitical instability, but also profound technological changes. In its report, UBS identifies three main factors that will have a decisive impact on the world: First, it indicates a potential slowdown but continued positive economic growth in the United States, while economic growth will remain weak. Second, UBS expects central banks to begin interest rate cutting cycles next year. Moreover, as the report noted, politics will play a major role in 2024 due to the US presidential elections and ongoing wars around the world.

With these factors in mind, UBS has provided its key recommendations to investors for the coming year.

“With interest rates expected to fall in 2024, investors should consider reducing overall cash balances and take advantage of opportunities to improve returns through term deposits, bond ladders and structured solutions,” she said.

“Buy high-quality products. High-quality bonds should provide yield and capital appreciation, while stocks with stable balance sheets and sustainable profit margins may be better positioned to deliver profits despite weak economic growth,” she said.

“Trade a variety of currencies and commodities. Given that the US dollar is expected to remain at current levels and crude oil prices are expected to be in the range of US$90-100 per barrel, opportunities should be sought in profit-generating strategies or strategies that enable investors to From systematic buying of currencies below current levels.

“Hedge against different forms of market risk. Geopolitical uncertainty means that Investors need to prepare for the upcoming volatility. In addition to diversification, investors can further protect their portfolios against specific risks through capital preservation strategies, alternatives, or oil and gold.

“Diversify using alternative credit systems. The context of low interest rates and increased price volatility and spread due to rising global debt stocks supports a variety of credit strategies, including credit arbitrage and distressed debt.”

“We view 2024 as the beginning of a new world,” said Mark Haefele, chief investment officer at UBS GWM. “While we may feel anxious in the face of new challenges, years of adversity reinforce three factors in the investment context – the value of global diversification, patience, and most importantly… , human immunity.

UBS offers four scenarios for next year:

1. The norm, i.e. “soft landing”. In this scenario, stocks and bonds would achieve a positive rate of return in 2024. “Slowing U.S. economic growth, lower inflation and lower interest rate expectations should mean lower yields, supporting bond and stock valuations, while the absence of a major recession in the U.S. It should be sufficient to enable companies to increase their profits.

2. Bottom scenario – “hard landing”. In this version of events, UBS predicts that stocks are likely to have negative returns and bonds are likely to have positive returns. A sudden slowdown in economic growth (which may result from the cumulative effect of previous increases in interest rates) will lead to a recession. “Gloomy investor sentiment and a significant drop in earnings expectations are dragging down stock prices,” UBS notes. “Bonds are performing well, interest rate expectations are falling sharply, and investors are looking for safe havens.”

3. The upper scenario, i.e. “above”. This scenario presented by UBS assumes that stocks will deliver positive returns and bonds will deliver stable returns. Economic growth will support earnings growth, investor sentiment and ultimately stock prices. Steady growth and above-target inflation will keep bond yields high, so you can expect steady returns.

4. Alternative Bottom Scenario – “Bond Guard”. In the latest version of events, UBS expects that both stocks and bonds will underperform. “Bond yields continue to rise, perhaps due to concerns about excessive fiscal deficits, rising energy prices, or a prolonged period of above-target inflation. In this scenario, higher bond yields also weigh on stocks as higher interest rates push down the estimated fair valuation.” The report shows that some investors are shifting their investments from stocks to bonds.

UBS is a wealth management entity with a global reach and a global bank in Switzerland. Provides asset management solutions and focused investment banking capabilities. Following the acquisition of Credit Suisse, UBS has $5.5 trillion in assets under management as of the second quarter of 2023. The bank is headquartered in Zurich, Switzerland, and operates in more than 50 countries around the world. UBS Group shares are listed on the Swiss SIX Stock Exchange and the New York Stock Exchange (NYSE).