Annual outlook 2024: FERI expects positive returns thanks to active multi-asset strategy

The increasing impact of monetary tightening and geopolitical risks will create a complex and uncertain environment for the capital markets in 2024. Despite declining inflation expectations, central banks are maintaining a restrictive monetary policy for the time being. This could potentially result in macroeconomic shocks. The US presidential elections are causing latent uncertainty, as are the explosive situation in the Middle East and the smouldering Taiwan conflict. Investors must therefore expect shorter cycles and greater fluctuations on the capital markets. "Under the given conditions in 2024, it will be important to react flexibly to market changes and utilise all available asset classes, including private markets, hedge funds, volatility strategies and increasingly digital assets. We are convinced that an active multi-asset allocation will enable us to ensure the preservation of our clients' assets in the coming year and also generate positive returns," says Dr Marcel Lähn, Member of the Management Board and Chief Investment Officer at FERI, summarising the 2024 outlook for the economy and capital markets.

Soft landing scenario increasingly unlikely

In FERI's base scenario, the significant deterioration in financing conditions as a result of the sharp rise in interest rates will lead to a moderate recession in the US economy over the course of 2024. "The soft landing narrative prevailing on the markets will be increasingly called into question in the coming year," says FERI Chief Economist Axel Angermann, explaining the FERI forecast for the economy. In FERI's base scenario, the significant deterioration in financing conditions as a result of the sharp rise in interest rates will lead to a moderate recession in the US economy over the course of 2024. "In our view, a recession is the prerequisite for inflation to fall to the target value of 2 per cent, which gives the Fed the opportunity to make its first interest rate cuts in the second half of the year." The economy in the eurozone will probably bottom out, but will remain without any real upward momentum overall. In view of the ongoing property market crisis and only selective stimulus, positive growth impetus is also unlikely from China.

Stock markets with potential, bonds attractive

In this environment, government bonds with high credit ratings benefit from attractive interest rates, and falling interest rates over the course of the year will be an additional performance driver. Low-rated corporate bonds, on the other hand, should be avoided due to the increased default risk. FERI also sees potential for equities. However, active management is required here in order to be able to selectively utilise opportunities. The optimistic market expectations, which are based on the belief in a soft landing for the US economy, will be subjected to a reality test over the course of the next year. In a weaker economic environment, defensive segments will then have an advantage before the possibility of a noticeable build-up of cyclical equity positions arises with the onset of the recession. The overall increase in uncertainty increases the return potential of volatility strategies. FERI is closely monitoring the forthcoming approval of a Bitcoin spot ETF, as the significantly expanded investment opportunities in digital assets will noticeably increase the importance of this asset class within a multi-asset allocation.

Second wave of inflation as a risk

Active currency management will come into focus in the course of 2024, as the dollar is likely to lose value against the euro once a recession has passed and the global economic outlook has improved. Interesting opportunities are likely to arise from an expected appreciation of the yen, as the Japanese central bank will change its previously expansionary monetary policy and raise its key interest rate.

One risk that investors should keep an eye on is the possibility of a second wave of inflation. This could be triggered, for example, by a drastic rise in the price of oil as a result of an escalation of the conflict in the Middle East. The result would be a further rise in interest rates and a sharper fall in share prices. "We are preparing for every conceivable scenario with corresponding consequences for the individual asset classes. This means we are well prepared for a challenging investment year overall," says FERI CEO Lähn.