2024 Financial Forecast: Navigating Growth and Uncertainty - GIM Trading Review By Alex Green, Chief Investment Officer

The 2024 financial landscape presents a dynamic mix of challenges and opportunities for investors, particularly for Australian markets. A GIM Trading review found that despite global economic uncertainties, there is significant optimism for strong performance in the Australian Stock Exchange (ASX) and the Australian dollar, bolstered by both local factors and broader geopolitical dynamics.

ASX Set to Outperform Global Markets

As we look ahead to 2024, the ASX 200 is positioned for impressive growth. AMP and Tribeca Capital forecast a potential rise in the ASX to 7,775 and 8,200 points respectively, representing about 9-10% growth when dividends are included. This anticipated performance highlights a positive shift, especially following the ASX’s underperformance in 2023 compared to U.S. indices like the S&P 500 and the tech-heavy Nasdaq Composite.

Following a review from GIM Trading analysts, one of the main drivers for the ASX’s growth is its exposure to key sectors such as resources and industrials, which are expected to outperform the growth sectors in the U.S.

“Australia’s resource-heavy market is well-positioned to benefit from China’s return to GDP growth and global demand for commodities,” says Jun Bei Liu, portfolio manager at Tribeca Capital. This sentiment is shared by AMP’s chief economist Shane Oliver, who notes, “Australian shares are likely to outperform global shares once dividends are accounted for, supported by attractive valuations and easing concerns around Chinese growth.”

At GIM Trading, we view this projected growth in the ASX as a major opportunity for Australian investors. Alex Green, CIO at GIM Trading, comments, “The ASX’s focus on resources and industrials aligns well with the global demand for raw materials and infrastructure, creating a strong base for consistent growth. Investors should capitalize on these opportunities by diversifying portfolios into key sectors driving this growth.”

Strengthening Australian Dollar Amid Global Volatility

Alongside strong market performance, the Australian dollar is also forecasted to rise against the U.S. dollar. Betashares expects the AUD to reach 75 US cents by the end of 2024, while NAB predicts it will trade around 73 US cents. A potential driver of this strength is the continued moderation of the U.S. dollar, paired with Australia’s “higher for longer” interest rate approach, which could offer a floor of support for the AUD.

China’s economic recovery is another factor contributing to the AUD’s positive outlook. As one of Australia’s largest trading partners, China’s demand for commodities will play a pivotal role in strengthening the local currency. Liu explains, “If China turns around quickly, we are likely to see a meaningful uplift for the Australian market and the Australian dollar.”

While the outlook for the AUD remains positive, risks such as global recessions and persistent inflation could temper this growth. “Geopolitical tensions, particularly in the U.S. and China, as well as the possibility of sticky inflation, present downside risks,” notes Green. However, the general trajectory for the AUD remains upward as the global economy stabilizes in 2024.

Navigating Rate Cuts and Economic Shifts

Interest rate policies will be a major theme for 2024. While Australia’s Reserve Bank has kept rates steady at 4.35%, there is ongoing debate about whether rate cuts will come into play later in the year. NAB forecasts the possibility of one final rate hike before cuts, while AMP’s Shane Oliver anticipates cuts as early as June 2024.

Historically, rate cuts are not always positive for markets. “Share markets tend to fall initially when central banks cut rates because it signals a weakening economy,” explains NAB’s Gemma Dale. “However, as rate cuts are fully absorbed into the market, they could ultimately drive stronger growth expectations in the latter half of the year.”

Green adds, “At GIM Trading, we anticipate that while there may be some initial volatility due to rate cuts, the long-term outlook for Australian equities remains positive. Lower interest rates could ultimately support stronger consumer spending and corporate earnings, which will bolster market performance.”

Conclusion: Capitalizing on 2024’s Opportunities

Overall, 2024 presents a promising year for Australian investors. The ASX is expected to outperform global markets, buoyed by strong performance in resource and industrial sectors. The Australian dollar is also forecasted to strengthen as global economic conditions stabilize and demand for Australian commodities increases.

While risks such as inflation and global geopolitical tensions remain, the general outlook is one of cautious optimism. As Green concludes, “For investors, the key in 2024 will be to remain agile, taking advantage of growth sectors while staying mindful of potential volatility. At GIM Trading, we believe a well-diversified portfolio, coupled with strategic insights, will allow our clients to navigate both the opportunities and challenges of the coming year effectively.”