As the financial curtain came down, marking the end of 2023, a heart-stopping rally in the last two months of the year showed global stock markets with strong annual gains due to investors betting on the fact that major central banks have finally stopped their monetary tightening policies and will indeed cut interest rates 2024. The MSCI World Index* has, since late October 2023, surged by 16%, and, with a flurry of late trading on the 29th of December, showed an annual gain of 22% . This was reflected in recent data showing that in western economies inflation is falling faster than expected, which, as mentioned above, dramatically changed the perception of interest rate changes. Indeed, Jerome Powell, Chairman of the Federal Reserve, fanned the flames of an equity rally in December by announcing that borrowing cost may have peaked.
*MSCI World Index – This is a stock index maintained by Morgan Stanley International (MSCI) and is designed to track broad global equity-market performance. This index is composed of stocks belonging to circa 3.000 companies from 23 developed countries and 25 emerging markets.
The rise in global equities as reflected in the MSCI World Index is the best run on an annual basis since 2019, when a similar run reflected a 25% gain. The S&P 500 finished the year up by circa 24% which was mainly due to a massive rally in megacap tech stocks. European markets, after a lacklustre 2022, posted positive gains in 2023 with Italy’s FTSE MIB charting gains of circa 30% and Germany’s DAX coming in with an impressive 20% increase. The overall increase for European equities was reflected on the STOXX 600* charting a gain of 12.6%. Elsewhere all three indexes in Japan posted hefty gains in 2023 with the Nikkei Stock average finishing the year up 28%, this being the best rally since 2013 which reflected a rise of 57%.
*STOXX 600 Index – This index tracks 600 of the largest stock exchange listed companies from 17 countries in Europe. The countries represented are Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Spain, Sweden, Switzerland and the United Kingdom.
The big omission from the global rally in stock markets is China, where the world’s second largest economy has suffered from problems in their property sector. As a result, the expected recovery has faltered. Indeed, China’s CSI 300, which measures the largest companies listed in Shenzhen and Shanghai, fell by 11.38%. Their flagship financial centre, Hong Kong, has suffered over the years and in 2023 stocks were particularly hard hit, with experts advising the Hang Seng index is the worst performer of 2023.
Sadly, in the United Kingdom the FTSE lagged behind their counterparts in the United States and Europe by posting a gain of 4% in 2023. Experts suggest that this is down to a stubborn inflation rate, energy companies that are oil-price exposed, and a preponderance of mining companies that are overexposed to and rely on a slowing Chinese economy.
Many expert strategists seem to be sitting on the fence when calling the outlook for 2024. This year will determine the fate of the political leadership for half the global economy, the final battle against inflation and the fate of the current business cycle. The IMF (International Monetary Fund) has issued figures for world growth in 2024 as 2.9% with investors being excited as the IMF issued growth figures for the Asia Pacific region as 4.2%. Specifically in Singapore, Vietnam and Taiwan, analysts suggest these countries could outperform in 2024 due to the potential upswing in global tech, as they have a high concentration of manufacturing and R&D facilities. All in all many experts are suggesting a wait and see policy, as we see how the US/China relationship unfolds, the on-going ramifications of the Russia/Ukraine war, where interest rates stand in June this year, and whether or not the USA economy enjoys a soft landing.