2024 recently looked gray or black, with slowdown, tall guys and tired pockets. But consumption is holding up, inflation is taming and people are spending and traveling. Meanwhile, companies surprise when presenting accounts. Result: more resistance than expected that pushes the stock market to maximums while fixed income closes a year of joy. Good overall photo. Next year may have bumps, but it looks better, and has better opportunities, than before.
For the investor and saver there is a more normalized, more logical scenario, the experts agree. With the era of ultra-low rates over, there is no longer the obligation to go public, with more risk, for a good return. You can build a portfolio based more on your profile and deadlines. “We have had very low rates for quite a few years, with many investors pushed into riskier assets,” comments Sébastien Senegas, head of southern Europe at Edmond de Rothschild AM. Today even the most conservative smiles: Treasury bills pay more than 3%, deposits exceed 4%, accounts pay 5%...
Prices and monetary policy will continue to set the trend. More than a fall in the economy, the concern would be what it infects, such as whether it slows down spending. “There are three axes to take into account. Inflation, objective to beat; growth, not only if it falls into recession, but also look at consumption or the labor market; and geopolitics”, reviews Almudena Mendaza, head of sales in Iberia at Generali Investments. “The risks are the same, the opportunities too,” she says. The feeling is that things are going better than expected within a slowdown that will get worse, although the price of oil is giving a respite. “The impact of the rate increase on disposable income for consumption is being lower than expected. Employment resists and we see salary increases. Consumption and services are doing better than the industry and the cloud has not been such,” explain Bestinver sources.
In this panorama, taking into account the risk-return binomial, eyes turn to quality corporate debt, with investment grade. “This year fixed income has returned. It has been easy to build portfolios with diversified and quality bonds, but now it will be time to be selective. Companies may suffer a little more and affect prices,” warns Mendaza. They like terms of 3-5 years. In sovereign bonds, the US and Europe –peripherals such as Spain, Italy, Greece–. “Years ago it wasn't worth it.” Today Yes.
“Looking to the future, the base scenario is positive returns for debt assets, both public and corporate, being selective,” insists Dídac Pérez, investment director at Caixa d’Enginyers. Quality segments, with investment grade. “We are in medium durations, pivoting on 4 years, because it balances profitability (IRR) and sensitivity to interest rates well.” By country, they focus on Germany, Spain and the US. “It does not mean that there is no value outside,” he points out.
Corporate debt has more risk, but there is a justified interest because “the fundamentals of the companies continue to be very good, there is a reduction in debt on the balance sheet and low default rates,” argues Pérez. The way to take advantage of it is through investment funds, since issues require a minimum of 100,000 euros. “Given the difficulty of access and the minimum, the appropriate thing is through funds or ETFs,” he says.
It must be taken into account that the markets are already pricing in rate reductions. “When they will arrive is a question mark, whether at the beginning of the year or in the second half. But at some point in 2024 we should start to see rate reductions. It is something that is already priced,” she explains. The latest Reuters polls point to a cut of at least 1 point by the Fed in the year and 0.75 points by the ECB. The new issues already come out with a lower interest, as seen in the Spanish debt, which is reducing the payment in the auctions. This makes recently placed outstanding bonds more attractive. If rates rise, the opposite happens, with massive sales and losses as in 2022.
“Investment carries risks due to changes in interest rates. There is a clear short-term opportunity to take advantage of, the expected returns are at historically high levels,” Edmond de Rothschild comments. Without hesitation, betting on investment grade debt: “There is no need to go looking for lower quality companies to improve profitability.” A conservative profile can invest today in high-quality fixed debt with little risk, with good profitability, highlights Senegas.
In the stock market the vision is similar. If you are selective, opportunities appear. It is mandatory because the Christmas rally has pushed the stock markets to touch historical highs - in New York, London or Paris - or not seen in years - Ibex 35 -. “You have to have a diversified, balanced portfolio, if you gamble on one sector you can lose. It is about taking advantage of the background current,” they say from Bestinver. They see opportunities in technology, in industry – “the worst in manufacturing is over” – or in consumption, due to the increase in family spending. They are betting on active management and combining cyclical companies that provide consistency and look cheap such as Rolls Royce, Deutsche Börse, BMW, Holcim or Heidelberg Materials; with defensive firms such as Heineken for its dominance, Berkshire Hathaway for the quality of its portfolio or Roche, for the opportunities in the sector.
Potholes and corrections are not ruled out: “It is normality.” Because from the current highs at some point there has to be profit taking. And also because there are war unknowns, uncertainty with the Chinese economy and monetary policy. Another question is whether the recession is inevitable. “The pace of the markets has been a little accelerated. Although the trend is that they will continue well, there will be a pause at some point,” says Senegas. These will be moments to build a portfolio. In his firm, they are opting in the medium term for health – “the stock market has suffered a lot after the covid” – and technology linked to AI – being careful about high valuations –, without seeing any further progress in luxury. At Generali they agree that the gains will not be widespread, that there will be sectors that rise and others that decline. He reiterates the idea of not paying dearly for technology and focuses on semiconductors, both in Europe and the US.
When choosing, you must take into account the investment term. In the long run, the recommendation is a stock market. In short periods, such as twelve months, short-term fixed income. At Edmond de Rothschild, for money needed in a year they see a deposit or Treasury bills as a good option rather than a risky fund.
Gold is a reflection of the contradiction between unknowns and opportunities. Between the refuge and speculation, it revalues close to 12% in the year. Safeguard purchases were unleashed with the banking crisis in the US at the beginning of the year or the Hamas attack in Israel. Another price boost is the recent festivities in India, with massive purchases, the total Chinese opening after the covid or the fall of the dollar, which makes its purchase cheaper since it is quoted in that currency. Also the forecast of stable or lower rates, which leads to searching for profitable alternatives. “The decline in rates benefits gold. When they go down, the yield of the bonds goes down and makes it more attractive as a counterpoint,” reads Raquel Herrero, leader of the precious metals operations team at StoneX Bullion.
Combining everything, in recent days it has reached historical highs, at more than $2,100 per ounce intraday. “It is benefiting from the economic and geopolitical crises. The market gets nervous and seeks refuge. If everything remains as it has been until now, it will possibly correct a little due to the collection of profits and because the level of 2,000 is very psychological,” he predicts. The market is divided between options more linked to seeking refuge, such as buying physical gold, and more speculative, with ETFs or mining shares.
Aside from finances, rates have also hit the bricks. The Euribor has made mortgages more expensive and slowed down sales, although not prices. “Transactions and mortgages have been slowing down since the beginning of the year, but it is not being reflected in prices, especially in large capitals,” comments Ferran Font, director of studies at Pisos.com. The INE data contrasts falls in home sales of 24% year-on-year with an 11% increase in the price of new homes, a maximum in 16 years, and 3.2% for used homes.
Rent continues unstoppable, with a rebound of 7.3%, it is noted. Thus, “in 2024 it will continue to be an interesting market. The rental return is 6%-6.5% annually,” Font details. With the transfer of people who give up buying, demand is strong: “More and more people want to go to a market with less housing available.” In cities where buying to rent is more expensive, such as Barcelona, Palma, Madrid or San Sebastián, the profitability is somewhat lower.
