2024 and Beyond – A Challenging Environment but Opportunities Remain

War in Ukraine, indirect inflation, interest rates, China’s faltering economic recovery, supply chain fragility, and geopolitical tensions have joined rank with higher global taxation and continued monetary tightening. In 2024, developed economies continue on a low-growth, low-return curve.

Following a decline in 2023, earnings growth anticipations for 2024 and 2025 have moved higher for emerging economies compared to developed economies, including the United States, to 17 per cent and 15 per cent respectively.

Emerging economies’ debt and equity is one of the most mispriced asset classes, with 5.3 per cent of global investments allocated to emerging economies equities. At a discount rate of 30 per cent, emerging economies’ valuations remain inexpensive compared to developed economies. The discount may narrow in the next years, due to stronger earnings growth, recovering profitability, and a higher economic growth premium in favor of emerging economies.

2024 and Beyond

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Data Matter More Than Stories

There exists a trend amongst investors to seek exposure to “headline” themes relating to the impact of  emerging industries and economies. Examples are “India’s middle class is extending”, “neural networks  overtaking process manufacturing”, or “Africa, the fastest growing tourism destination”.

Although stories may become reality in the long run, they lack predictive power for asset returns.  Investors can miss out on the larger, more opaque risks associated with various stages of the economic cycle and asset classes they focus on. Portfolio companies may project growth above trend, and extrapolate on the higher trajectory. Experience learns that most of these cycles and asset classes  eventually revert to their median level of growth.

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