Macro developments and policy moves caused serious mood swings amongst investors in 2023. Worries about higher for longer inflation leading to a recession were traded for optimism about a soft landing towards the end of the year. We see Federal Reserve chairman Powell’s guidance that several rate cuts are on the cards for 2024 as a positive, as long as this is for the right reason. Namely that inflation is becoming under control, and not because the Fed knows something that the market doesn’t. We follow closely how the effect of higher interest rates is starting to come through in the real economy. Credit card delinquencies are rising rapidly in the US, the number of bankruptcies is creeping up, also in Europe, and few companies surprise positively on revenue growth. Data from the trucking sector, usually a good leading indicator of future economic activity in the US, also shows signs of weakness. This calls for caution, and we select stocks accordingly.
At the same time, long term investors are seeing that tech advances are accelerating and increasingly driving productivity growth. We are now hitting the steeper part of the technology curve. The pace of change through the internet economy years of 1995 to 2020 may look sedate by comparison with the advances we are about to see in the next decade. In addition, the recent COP 28 in Dubai showed that the energy transition is still a powerful driver and will bring tremendous investment opportunities. These trends are reflected in our portfolios as well.
Furthermore, we pound the table for emerging markets. In this Quarterly we discuss how we see many emerging markets benefiting from macroeconomic strength compared to the developed world, and from a strong position in key growth industries. Robeco’s emerging markets strategies offer multiple ways to initiate or calibrate exposure to benefit from a long-term rebalancing towards the world’s fastest growing economies.
Thanks for reading, enjoy the end-of-year celebrations, and we look forward to catching up with you in 2024!
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Footnote
1 Source: Morningstar, Robeco Performance Management
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