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Turning the page: 2023 review and portfolio positioning for 2024

Jan 10, 2024

As we begin 2024, we enter a period brimming with both opportunities and uncertainties. 2023 was a testament to the unpredictability of global markets, characterized by unexpected economic resilience in some regions and challenges in others. The year began under the shadow of slowing growth and recession concerns in major developed markets and, as it progressed, saw considerable inflation uncertainty, the war in Europe, and a new geopolitical flashpoint in the Middle East. Yet, by the end of the year, global equity markets, including India’s, had soared to new heights, and the US Federal Reserve has given the markets a sugar rush by indicating a glide path to lower interest rates.

The inescapable conclusion, as we hope our readers will infer, is that adhering to the fundamental principles of asset allocation remains the most preferred approach to investing. In this article we review the recent performance of key markets and portfolio strategies, and the optimal positioning for 2024.

Diverging Economic Fortunes

The US economy demonstrated unexpected resilience, successfully weathering regional banking issues, geopolitical tensions, political dysfunction, and steep rate hikes. Europe, on the other hand, grappled with the repercussions of the Russia-Ukraine conflict, teetering on the brink of recession. China’s growth waned under the weight of structural challenges like the real estate debt crisis. Interestingly, inflation, rather than growth, emerged as the key market driver, influencing market movements on both its actual trajectory and expectations.

Equity Markets: The Unexpected Heroes

Global equities, particularly in the US, outshone expectations, lifted by a rally centered on the “magnificent seven,” the top US technology stocks, bolstered by the hype surrounding artificial intelligence. The Indian market was also among the top performers, driven by outsized returns in mid and small-cap equities. Despite its volatility, Gold emerged as a strong performer, yielding double-digit returns. While experiencing their share of volatility bond markets ended positively.

At the start of the year, some may have contemplated significantly reducing equity exposure given the gloomy narrative, but that would have backfired. A time-tested principle of portfolio construction is to establish a long-term strategic asset allocation based on goals, risk appetite, and individual circumstances and then make controlled adjustments based on nearer-term market views with predefined risk limits for underweighting or overweighting asset classes.
 
We remained neutral on equities throughout the year, overweight gold given geopolitical tensions, and recommended private market allocations, given compressed valuations and solid business opportunities not readily available in the public markets.

2024: Optimism and Caution

Looking ahead in 2024, markets anticipate a ‘soft landing’ with controlled growth and manageable interest rates. However, history serves as a cautionary tale, often linking sharp rate hikes to subsequent recessions with a lag. Hence, it would be prudent to remain vigilant.
Significant US monetary tightening generally causes recessions.

Significant US monetary tightening generally causes recessions.


The US faces some headwinds, with potential drops in consumer spending, tighter lending standards, and increased corporate borrowing rates. A significant amount of speculative-grade non-financial debt is maturing over the next 2-3 years and will have to be refinanced at higher rates. This could lead to higher default rates. Finally, even the US government’s balance sheet is stretched with the fiscal deficit ballooning.

India, in contrast, emerges as a beacon of stability. The fruits of structural reforms and prudent fiscal and monetary policies have positioned it favorably, providing strong tailwinds for elevated growth in the years to come.

On the political front, as major economies, including the US, India, the European Union, and the UK, head into elections, some market volatility can be expected.

Our portfolio strategy rests on a balanced approach. We maintain a neutral stance on equities, cognizant of India’s strong fundamentals set against global uncertainties and rich valuations. Gold remains a preferred asset class, offering a hedge against geopolitical tensions. The debt market, offering attractive yields, presents opportunities for alpha generation, albeit with caution, until rate cuts materialize. We also think private market valuations remain attractive and investors in this vintage could create value over the long term.


Internationally, emerging markets, particularly in Asia, appear promising. Despite China’s current challenges, its attractive valuations cannot be overlooked. Neither can the possibility of policy actions having a positive impact on the economy and markets. Also, the resilience shown by other Asian markets like Vietnam and Indonesia, and their cheaper valuations compared to developed markets, make them favorable investment choices.

In Conclusion: Sticking to Basics

Amid the complexities of financial markets and continued uncertainties worldwide, adhering to the fundamental principles of asset allocation, diversification, staying invested, and disciplined risk management while staying vigilant and leaning into a few well-chosen tactical opportunities like emerging markets remains advisable.

For more information, please visit www.sanctumwealth.com

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