Fund managers are keeping a keen eye on the economy and interest rates as they evaluate the prospect for global sharemarkets in the year ahead. 

The Australian economy is expected to prove more resilient than its global peers, though the United States may well avoid recession too. Still, key factors continue to weigh on the outlook for both local and international shares and advisers would be wise to remain watchful as geopolitics and market dynamics play out. 

Below are the views of five experts which provide a sense of what to expect in 2024.

Australian market outlook

Equity Trustees Asset Management’s Chief Investment Officer, Darren Thompson, says that while near term economic growth and local earnings are forecast to be solid, the strength of consumer sentiment in Australia will increasingly be tested as we move through 2024.

“This will begin to impinge on many companies’ ability to maintain margins as costs rise and price increases become more difficult to sustain,” Thompson says. 

“While of course not all companies are created equally, this will be a headwind for corporate earnings and potentially a greater impact on dividends as boards exercise caution in a less certain environment.”

He says the Australian market will be impacted by three significant factors: 

• The banking sector may experience earnings decline due to a combination of anaemic credit growth, higher costs, increased competition and an up-tick in bad debts.
• Margin pressures for many businesses will make it more difficult to pass on rising costs to a weakening consumer.
• Potential weaknesses in commodity prices, notably iron ore (which is heavily dependent on China policy and economic conditions).

Thompson says “[local] equities will trade on reasonable valuation multiples. However, they may come under pressure if the market’s consensus view of a soft landing fails to materialise and economic conditions worsen.”

Ausbil Investment Management’s Executive Chairman, Co-founder and Chief Investment Officer, Paul Xiradis notes that the Australian economy is now in the early stages of normalisation.

While there is much geopolitical risk, he notes the global economy is on an upward path and is expected to grow by 3.2% in 2024 on Ausbil’s forecasts. 

Xiradis suggests Australia’s advantage in global resources places it well ahead of other developed economies in supporting growth and avoiding a recession. 

“Our reading of the economy is that with economic growth harder to come by in 2024, so will be the case for earnings growth, however, there is room for some upward surprise in certain sectors as Australia’s economy remains relatively resilient and is operating near full employment,” he says. 

“In the non-resource sectors, better earnings growth outcomes are likely in health care, technology, telecommunications, commercial services, and to a lesser extent the banking sector. 

“Value is also emerging in quality real estate investment trusts, particularly those with exposure to data centres and housing given population growth. Certain names within the infrastructure space are also offering value following the recent downward adjustment in prices,” he added.

J.P. Morgan Asset Management, as part of its annual Long Term Capital Market Assumptions report, suggests the S&P/ASX 200 has the potential to outperform both American large caps and the benchmark developed market equities index over the next 15 years on a total return basis. 

It argues corporate margins are expected to fall less in Australia than in many other jurisdictions, as revenues hold up relatively strongly. Dividends are projected to add more than 4% to the ASX's total return profile one percentage point more than its nearest rival on an Australian dollar basis. 

Global view

Russell Investments’ strategists warn against over-optimism even though it believes a US recession might be avoided next year.

“We expect 2024 will be the transition year that the industry consensus anticipated for 2023,” said Andrew Pease, Chief Investment Strategist at Russell Investments. 

“The over-pessimism about 2023 has become over-optimism for 2024. We are in a twilight zone between slowdown, possible recession and recovery, where nothing is likely to be quite what it seems.”

Slowing jobs growth and declining inflation at year-end 2023 offer signs the economy has begun to cool, which Pease believes means the US Federal Reserve has probably finished lifting interest rates and may contemplate easing during the first half of 2024. It also means markets are entering a period of heightened uncertainty as investors debate whether recession can be avoided. 

“It may appear for a time that the US economy has achieved a soft-landing, but this could be a waypoint on the path to a mild recession later in 2024,” he says.

Macquarie Group (Macquarie) cautions investors will not find it easier to generate returns even if the US avoids recession. 

Macquarie forecasts global and US economies will further slow in calendar year 2024 but are likely to avoid recession with a rapid shift from inflation to disinflation. This could see central bankers pivot to rate cuts and monetary support to avoid stagnant growth.

Macquarie notes that economic pandemic reserves are now all but exhausted and this will help the retreat of inflation, but also slow economic growth next year. 

Macquarie's suggestion is that investors seek companies that demonstrate quality, sustainable growth and are attached to big themes such as the replacement of human labour, biotechnology, defence, ageing population, technological disruption and alternative energy.

Many big-name US stocks make its list of potential stocks, including Microsoft, Amazon, Alphabet, Nvidia, Lockheed Martin, Nike, Cisco and Salesforce. There is also strong representation from Japan (Sony, Olympus, Keyence Corporation and Chugai Pharmaceutical) and a smattering of big names from Europe, including Schneider Electric and LVMH.  Only one Australian name makes its list, resources giant BHP Group.