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UBS report. Economic forecasts for 2024, entering the “new world”

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In 2024, we will enter a “new world” – the global economy and geopolitics will face big changes. The report of the Chief Investment Office at UBS presents, among others: scenarios for the future. These include economic uncertainty and political instability, but also profound technological changes.

In 2024, the world of geoeconomics will see big changes – the Chief Investment Office at UBS Global Wealth Management even 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 outlines three key factors that will have a decisive impact on the world: First, it points to the likely slowing but continued positive economic growth in the US, while economic growth will remain subdued. Secondly, UBS expects that central banks will begin interest rate cutting cycles next year. Moreover, as indicated in the report, politics will play a key role in 2024 due to the US presidential elections and ongoing wars around the world.

Taking these factors into account, UBS has presented its key recommendations for investors for the coming year.

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“With interest rates expected to decline in 2024, investors should consider reducing overall cash balances and take advantage of opportunities to optimize yields through time deposits, bond ladders and structured solutions,” it said.

“Purchase high-quality products. High-quality bonds should provide both yield and capital appreciation, while stocks with stable balance sheets and sustainable profit margins are probably best positioned to generate profits despite weaker economic growth,” it said.

“Trading 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 USD 90-100 per barrel, opportunities should be sought in strategies to generate profitability or strategies that enable investors systematic buying of currencies below current levels,” the report suggested.

“Hedging various 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.

“Diversification using alternative credit regimes. The context of lower interest rates and increased price and spread volatility due to high global debt balances is supporting a variety of credit strategies, including credit arbitrage and distressed debt.”

Mark Haefele, Chief Investment Officer at UBS GWM, said: “We look at 2024 as the beginning of a new world. And while we may feel anxious in the face of new challenges, years of adversity reinforce three factors in the context of investing – the value of global diversification, patience and, most importantly, most importantly, human immunity.

Four scenarios for 2024 according to UBS

UBS presents four scenarios for the coming year:

1. Base, i.e. “soft landing”. In this scenario, stocks and bonds will deliver a positive rate of return in 2024. “Slowing US economic growth, falling inflation and lower interest rate expectations should mean lower yields, supporting bond and equity valuations, while the absence of a major recession in the US should be enough to enable companies to further increase profits,” the report noted.

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

3. The upper scenario, i.e. “up”. 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 consistent returns.

4. Alternative bottom scenario – “bond guardian”. In the latest version of events, UBS predicts that both the stock and the bond will underperform. “Bond yields continue to rise, potentially due to concerns about excessive fiscal deficits, higher energy prices, or a prolonged period of above-target inflation. In this scenario, higher bond yields also weigh on equities as higher interest rates lower the estimated fair valuation, and some investors are shifting their investments from shares to bonds,” the report presents.

UBS is an entity from the Wealth Management sector with a global reach and a universal 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. Headquartered in Zurich, Switzerland, the bank operates in more than 50 countries around the world. UBS Group shares are listed on the SIX Swiss Exchange and the New York Stock Exchange (NYSE).

Main photo source: Shutterstock

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