Breakfast Bites - Wrapping up 2023

Rise and shine everyone.

It’s the last trading day of 2023. What a year it has been! I want to thank you all as we head into 2024 and we hope to bring you even more research and analysis in the new year.

It’s a quiet trading today so I thought we could look at a quick recap of the year.

In terms of broad market performance, developed markets (EFA) outperformed Emerging Markets (EEM) and even Frontier Select (FM). A strong dollar and episodic spikes in energy & commodity prices held back a great many of the EMs. Not to mention, China didn’t help at all.

Overall, the most interesting markets that soared were Greece, Argentina, and Egypt. Of these, Greece remains the most stable and actually improved based on an upgrade in country ratings.

Asia and Australia

China and Hong Kong continued to disappoint investors, Despite an early headfake, we didn’t see returns even close to what we expected. The common prosperity and quality growth goal from the Government has given way to a lower growth regime for the country. Add that to the property woes, draconian government measures and crisis of confidence among the people and you have a market that no one wants to invest in. Not this year at least.

Turning to Japan, we got a new BoJ Governor who promised to be predictable and take a measured approach to changing policy. While Governor Ueda largely stuck to his approach, we did get some interesting surprises in the form of removing the YCC band. Traders were sure that we were going to get a change to policy this year but, by mid year it became more and more likely that 2024 would perhaps be the year. While equities saw robust growth, most of us had an eye on the JPY and its devaluation for most of the year, only to see a lot of that given back in November and December.

India certainly had a very interesting year. Starting off with a very bumpy quarter after allegations of wrongdoing against the Adani’s, the market not only recovered but soared from there on end. YTD the Sensex has returned a whopping 18.6%! Looking at their fundamentals, we don’t think it’s done! GDP growth continues to remain strong and the Indian Rupee has stabilized remarkably.

While clocking in a positive 8.6% return for the market, Australia has been anything but predictable. The market is one big chop-fest and between the RBA policy decision, LNG worker strikes and Inflation, we haven’t really seen clear leadership. As the RBA goes on hold, and possibly starts easing next year, we may see a different story.

Europe, Middle East, Africa

The Euro Area has been a story of rate hikes, moderating inflation and falling PMIs. Sentiment and growth has been abysmal. But, that’s got nothing to do with the markets apparently. We saw somewhat of a Banking Crisis with Credit Suisse being taken over, but it’s been mostly a gradual decline in manufacturing and consumer spending. The markets were led by the banks that had a wonderful time making money as rates increased, and meanwhile we saw quite a hit to the consumer sector because of the lack of buying from China.

Inflation, wages and the property market continue to weigh on the UK. With a much higher proportion of mortgages on floating rates, consumers have had a tough go with inflation and rates being so high. It’s a double whammy and the Bank of England’s stop-go with rate hikes probably didn’t do them any favors. But, the equity markets still hold some promise with many good companies still quite undervalued.

For the Middle East, the story was all around OPEC cuts and restricting supply. With some final drama of Angola actually leaving the OPEC altogether. And we still remain in a situation where supply will remain tight in 2024

The Americas

Mexico has been quite the success story, in my opinion. The way their Central Bank has handled their policy decision and inflation has been impressive. This is one of my favorite inflation charts!

Last but not least, the US. This year was a story of liquidity and 0DTEs. The US Equity Indices have awed everyone this year. And with how closely we’ve been covering it all year there’s not much more we can say. Here’s an interesting chart though, which seems to suggest that the “buy-the-dip” impulse in the US never went away.

Chart of the Year: And finally, the year is not complete without a discussion of the uncertainty we face around the world. While I try to steer clear on political discussions, it’s naive to think that there’s no bearing on us. Particularly at a time when geopolitical tensions continue to increase across the globe and 2024 will be a year when ~60% of the world’s GDP (20+ countries) face an election. Let’s hope that we get something good out of all that.

We wish you and your family a wonderful end to 2023!