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David Lerche

Chief Investment Officer

This has certainly been a year of unexpected trends shaping the global economic and investment landscape. It turned out to be a far better year for investors than most analysts had predicted, with the so-called Magnificent 7 mega-cap tech stocks dominating global equity market returns. South African markets fared less well, lagging their global counterparts significantly. After the surprises of 2023, what’s the investment outlook for 2024? What can we expect from financial markets?

With a myriad of factors impacting reliable predictions, the unfolding of macro events and global trends often tends to surprise analysts. This year was no exception, again highlighting that no one can forecast consistently and accurately. Despite this, however, we should and do endeavour to understand the macro environment. While we should ‘expect the unexpected’, and historical patterns may not necessarily be repeated in a particular order, they can provide us with a sense of context regarding whether the prices of a wide range of assets appear reasonable or not.


Before we consider how 2023 unfolded and how we should understand these events, let’s start by revisiting what we said at the start of the year:

  • We held that asset prices were neither clearly cheap nor expensive.
  • In our view, the macro landscape would be dependent on how central bankers navigated still-high inflation and slowing economic activity. Our concern was that if economic activity slowed rapidly, it might be politically complex to maintain restrictive rates.
  • We saw only marginal differences in expected returns from local and global assets.

So what actually happened? We can now unequivocally state that 2023 defied the predictions of most economists. In our view, the most important ‘unexpected’ trends of 2023 have been:

  • In the face of central banks’ interest rate hikes to tackle inflation, the US economy has remained remarkably resilient and accordingly financial markets haven’t had reason to correct as they’ve done historically.
  • Consumers globally – outside China – have remained broadly positive.
  • We’ve entered a daunting ‘new world’ with the meteoric rise of artificial intelligence (AI), the social and economic impact of which has yet to be determined.

While the data pointed towards a looming recession, the world essentially shrugged this off, thanks to fixed-rate mortgages and corporate bonds that were immune to rate hikes. It appears that in developed markets, inflation is being reined in, which means we can look forward to a future of less restrictive interest rates. In the US, the consumer price index started the year above 6% and had fallen to 3.2% at the last reading. This, coupled with short-term interest rates above 5% in the US, means that fixed-interest investors are being offered the highest real yields since before the global financial crisis.


As it turned out, 2023 was a better year for investors in stocks than most strategists expected. Global equities gained an impressive 18% over the 11 months to the end of November, but the market was narrow, with most returns driven by just seven stocks.

With a new year came a new set of darlings and the market showed its willingness to pay for growth. To the end of November, the so-called Magnificent 7 delivered just over 100%, while the rest of the S&P 500 gained only 6%. The focus was on AI and GLP-1 diabetes and weight-loss drugs.

With AI being essentially the preserve of the world’s largest tech companies, the South African market, which hadn’t suffered alongside its global peers in 2022, lagged in 2023, delivering only 7% in rand terms and -3% in US dollars.

Our concerns about global bonds were again well founded. This asset class spent much of the year in negative territory but improved later in the year to be up by only 1.5% for a negative real return. This was, however, still better than local bonds, which declined 2% in US dollar terms. Global listed property continued to feel the pain of the combination of higher rates and a changed post-Covid-19 world, up less than 1% in US dollar terms, behind both equities and bonds.


By late 2022, investors had clearly assigned a higher risk premium to Chinese equities as they fretted about China’s policy priorities and social agenda. And then, in mid-December, that country’s zero-Covid-19 policy was abruptly ended. Many commentators believed this would trigger a rapid rebound in China, but in the end it turned out to be a damp squib. The US experience of rapid normalisation in activity and ‘revenge’ spending wasn’t echoed in China.

Having been under far harsher lockdowns for much longer than the rest of the world, Chinese consumers appear to have been scarred by the experience and they emerged in a considerably more subdued and conservative frame of mind. China remains out of sync with the rest of the global economy in that it is currently in a stimulatory phase as it attempts to rebuild confidence.

Despite the continued war in Ukraine and the recent resumption of fighting in Israel and Gaza, geopolitics was a mild tailwind in 2023, driven by the thawing of relations between the US and China.


In looking ahead to 2024, our starting point is understanding whether asset prices are currently high or low:

  • On the equity front, the MSCI World Index’s forward price-to-earnings ratio is a little more than 10% above its average for this century. At an index level, investors are not pricing in any sort of meaningful recession or drop in earnings, with forward estimates above their level at the beginning of the year. In our view, the market is priced for rates to come down in 2024. So while global equities appear slightly expensive, they are too close to ‘normal’ to give any sort of clear signal.
  • In South Africa, the JSE is trading around 10% below its average multiple of trend earnings. Non-mining sectors are as cheap as they’ve been outside the financial crisis and Covid-19 market panics.
  • On a range of metrics, US equities look a bit expensive, while South African equities look rather cheap and European equities appear close to the middle.
  • Global bond yields are back to long-term norms but are still the highest they’ve been for many years. The real yields offered by US bonds of around 2% are the most attractive since before the financial crisis and prices therefore appear low.
  • Relative to equities, global bonds are definitely more attractively priced. The premium that investors in stocks are currently being paid for taking extra risk over bonds is the lowest in over 20 years.
  • At around an 11% yield, South African bonds offer encouraging real yields. Investors are being well paid for the risk associated with lending money to our government.

Taking the above into account, the balance of probabilities suggests that multi-asset portfolios should have mild tilts towards fixed income securities, and the stock selection within equity portfolios should be tilted defensively. Throughout 2023, we continued to add to global bonds in our multi-asset mandates as they offer encouraging prospective positive real returns.


The macro outlook for 2024, both globally and locally, remains subject to significant challenges, key among them the lagged impact of rate hikes. The market’s concerns around ‘higher-for-longer’ interest rates abated in November, but we still see this as a material possibility. In our view, equity markets are priced for the combination of mild decreases in interest rates from mid-2024, but no material slowing in economic growth. Historically, this so-called soft landing scenario has seldom been achieved.

We remain concerned that the lagged impact of higher rates has yet to play through in economic activity in the US, although it is evident in Europe. Real rates only turned positive around the middle of 2023, so the effect of rate hikes will likely still be felt. The big question is whether the global economy will respond to higher rates in a similar manner to the past, just with a longer lag due to the higher proportion of fixed-rate mortgages and corporate debt, or whether central banks will for the first time engineer a major slowing of inflation without causing a recession.

Although we believe there is only a 30% chance of a US recession in 2024, this is still material. Typically, equity markets bottom out during recessions. So if there is one, returns may be low or negative.


How do South African assets rank against this global backdrop? The ongoing problems with the state’s various organs continue to act as a clear drag on the economy. Loadshedding should be less severe in 2024, easing some of the pressure on corporate profits. However, the mounting problems at Transnet are a distinct negative for both importers and exporters.

Unfortunately, the same impediments that have been at play for a number of years, including the decay of state-owned enterprises, poor execution across most government departments and corrupt government practices, all contribute to sluggish economic growth. This probably won’t change in the short term.

Both local and foreign market participants already know this and have priced it in. Global emerging market investors are far more focused on countries like India, where growth is likely to be higher than in South Africa. This means that local assets are quite attractively priced.

We also have an election looming in 2024. Typically, foreign investors prefer to sit on the sidelines ahead of elections in emerging markets. And this is the first election in 30 years where the outcome is not a foregone conclusion, so we would expect the returns from local assets to be weighted to the second half of the year.


It’s important to remember that while history often ‘rhymes’, as Mark Twain said, the future will have its own idiosyncrasies, as we’ve seen this year. However, our process and philosophy at Sanlam Private Wealth are focused on investing for the long term, with the aim of investing in shares that will consistently deliver returns above their cost of capital – at the right price.

In our view, there is always opportunity to find such businesses amid challenges – if one has the fortitude to look through the short-term noise, both positive and negative. And as always, efficient and appropriate diversification is crucial to ensure that our clients’ portfolios are in the best possible position to navigate macro uncertainty.

Our investment professionals have shared their insights on the investment lessons we can learn from a year characterised by unexpected trends – read more here.

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