Tuesday, 16 January 2024
Written by Matthew Stuart-Box, Chief Investment Officer of MYTHEO
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As we navigate through the early days of the new year, it's crucial to revisit the intricate dynamics that shaped the financial markets in 2023. Macroeconomic factors, including inflation, interest rates, and ongoing geopolitical uncertainties, played a significant role in influencing the landscape. In this report, let’s review how these elements influenced the economy, financial markets and MYTHEO last year. This reflection is valuable as we navigate through the early days of the new year, preparing for what lies ahead in 2024.

Global Economy
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The graph below shows the global GDP growth rate released by the International Monetary Fund (IMF). The global growth rate is expected to be around 3% over the next few years, at 3.5% (2022) and 3.0% (2023*forecast).

Global GDP Growth Rate (2000~2028*Including Forecast)

Source: International Monetary Fund (IMF)

Economic growth rates vary from country to country

‍However, there are significant variations in economic growth trends from country to country.

‍Despite the interest rate hikes, the U.S. economy in 2023 remains steady at 2.1%.

China's growth rate rebounded from 3% in 2022 to 5% in 2023, while India's 6.3% growth was the strongest among major economies at 6.3%.

‍Economic growth in Europe has been sluggish, with the EU average growth rate at 0.7% and Germany as the largest economy down by 0.5%.
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World Economic Outlook (As of October 2023)

Source: International Monetary Fund (IMF)

Inflation Trends

‍The inflation rate in the United States peaked at 9.1% in June 2022 and gradually declined to 3.1% in November 2023.

‍It remains above the Federal Reserve's inflation target, but the Fed has held interest rates unchanged since July 2023 after raising rates a total of 11 times over the past two years.

Many market participants expect the current interest rate cycle to peak and that the FED will begin to gradually lower interest rates starting in 2024.‍
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U.S. Policy Rate and Consumer Price Index (YoY) (January 2019 till November 2023).

Source: Federal Reserve Bank of New York, US Bureau of Labour Statistics

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‍The global inflation rate averaged 6.9% in 2023 (source: IMF), down from 8.7% in 2022. The IMF predicts that global inflation will fall to around 5.8% in year 2024 and gradually return to around 3% over the next three years.

However, geopolitical risks are rising. In addition to the ongoing conflict in Ukraine, the Israeli-Palestinian conflict that began in October 2023 risks escalating into a broader conflict in the Middle East. In addition, the risk of conflict over Taiwan continues to impact investor sentiment and the market volatility is likely to continue in 2024.

Although this is not directly related to financial markets, global warming continues, and according to the National Oceanic and Atmospheric Administration, 2024 is expected to be reach a record high temperature worldwide. The average temperature in 2024 could be more than 1°C above the pre-industrial average (1880-1900). This increases the risk of extreme weather events, unstable crop yields, energy supply problems and rising sea levels.
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Market Impact

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‍The table below shows the trends of the major market indices in 2023.

Source: GAX MD Sdn Bhd
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Stock markets

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‍Stock markets rose sharply in the U.S., Europe and Japan, while interest rates were almost flat in the US but fell in Europe and Malaysia. Meanwhile, oil prices fell but gold prices rose.

The chart below shows the performance of the stock and commodity markets in 2023. Stocks market in the U.S. and Europe have been depressed for much of the year but have risen strongly since the late October in the growing belief that the interest rate cycle should have peaked.

In the commodity markets, crude oil prices rose from around June to late September, but have declined since the end of September due to high production and concerns about a decline in demand in China.

Gold has recently been on the rise as the cost of owning gold has fallen due to rising geopolitical risks and expectation for lower interest rate.‍

Source: GAX MD Sdn Bhd

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‍* US stocks: Dow Jones Industrial Average Stock Average, European stocks: Euro Stoxx 50 Index, Japan stocks: Nikkei Stock Average

Interest Rates

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‍The graph below shows the trends of 10-year government bond yields and foreign exchange rates.

The yield on the 10-year US Treasury note rose to nearly 5%, but has been gradually declining since October. Interest rates in Europe and Japan followed a similar pattern, but with smaller movements.
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10-year Bond yield (December 2022 till December 2023)

Source: GAX MD Sdn Bhd
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Impact on MYTHEO

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‍The chart below shows the MYTHEO functional portfolios return since January 2021.

After a negative performance in year 2022, all the functional portfolios posted positive return in 2023. Each portfolio benefited from a variety of factors, including the strong performance of the stock market, the recent gained in the bond market, and currency trends.
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Source: GAX MD Sdn Bhd

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‍It is always difficult to predict how the market will move in the future due to an uncertain macroeconomic outlook. The market consensus for economic forecasts is that economic growth will continue in 2024, but much of it is already reflected in asset prices.

However, it's important not to focus on short-term fluctuations and timing the market. Short-term market forecasts are extremely difficult, but in the medium to long term, the best way to build assets is to steadily continue to manage a widely diversified portfolio.

MYTHEO incorporates up to 30 types of ETFs and thoroughly diversifies investments in 20,000 stocks from 70 countries and regions around the world. The optimisation and diversification strategy of MYTHEO into multiple assets classes, different risk return portfolio compositions and various countries and regions has proven to be a successful strategy in times of uncertainties and the ever-changing market conditions. In addition, from among 231 portfolios, we will propose the optimal portfolio according to each person's age and financial assets, and automatically adjust asset allocation according to changes in age.

So, if you use MYTHEO, you can relax and be assured that your assets are managed safely and securely.
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Disclaimers:
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Past performance is not a guarantee of future returns.

‍This communication is subject to terms available at the following link: