Usually, the beginning of the year is marked by forecasting for individual assets in portfolios (the mischievous call this process “fortune-telling”). After all, it is not forbidden to try to assess the outlook for financial instruments, having no more data because being after the opening of the year and a couple of coffees in the New Year already passed….
Starting with equities, in the baseline scenario (burdened with the highest probability), one can assume the value of stock indices at the end of 2024 above the initial values in the range (5-15%). With this, the first quarter of the year or the second quarters should be noticeably better. The ongoing rise since October is built on hopes of entering a rate reduction cycle in the USA. This is likely to happen in May or the summer months of 2024. Counter-intuitively, it can be assumed that the fact of a rate cut will no longer be conducive to further increases and the market will enter a phase of substantial profit realisation.
It promises to be an interesting year for the bond market. Given the current composition of the MPC, one has to expect that any looser fiscal policy with the assumed deficit included in the new draft budget for 2024 would be an argument for continuing to keep interest rates “higher for longer”. Changing inflation expectations, especially with an assumed increase in energy prices in H2, will give additional arguments to the MPC, not only for not lowering the rate, but even for a rate hike. In this situation, the only possible fuel for bond price rises could come from NIP measures. Stagnation in the government bond market is the most likely outcome. Fixed-rate government bonds should not yield more than 5-6%. In this asset class, a serious opportunity for higher returns comes from corporate bond funds built on high interest rates, keeping an eye on risk versus expected return ratios and well diversified.
In 2024, as we enter a downward interest rate cycle, commodities should be more attractive. This includes gold. The gold price at the end of 2024, assuming a 100 basis point drop in US interest rates (Goldman Sachs forecast) should be 10-20% higher than today. There are similar prospects for the copper price, which could be supported by demand from the RES segment. It is likely that the zloty will appreciate by 5-10% in 2024. A level close to PLN 4.1 per euro at the end of 2024 cannot be ruled out. The rate disparity will be decisive in this respect. With a stable economic situation, we will have a high central bank rate versus declining rates in the leading markets. In the second half of the year, the trend on EUR/USD should change. The EUR should appreciate and the USD depreciate.
Author: Martin Lau, The Main Analyst of Phinance S.A.
