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2024 Main Themes - War, Elections, Interest Rate

February 13, 2024

The three major events that will determine the market trends in the Year of the Dragon 2024 are war, elections, and interest rate.

According to the World Health Organization (WHO) statistics as of December 31, 2023, the global number of new Covid-19 cases was less than 69 million, a significant reduction compared to 200 million in 2021 and 420 million in 2022. With nearly 50 million cases occurring in January alone, the majority of the year experienced a significant reduction in the direct influence of Covid-19 on global economic activities. It is anticipated that in 2024, the world's economic activities will fully return to pre-pandemic levels. Despite the positive outlook on the pandemic front, geopolitical tensions and key events such as the Ukraine-Russia conflict, the Israel-Hamas conflict, and central banks worldwide raising interest rates have kept investors cautious, preventing a full economic recovery. As the new year begins, it's crucial to pay attention to key events or news in the market for better strategic deployment.

Looking at geopolitical situations, the Ukraine-Russia conflict has lasted for over 710 days since its outbreak, and whether the deadlock will be broken when spring arrives is crucial. Regarding the conflict in the Middle East, it is important to focus on whether its scope will expand to other regions. Moody's, a US rating agency, has recently downgraded Israel's credit rating to A2. The situations of these two regional conflicts not only directly affect oil prices, triggering risk aversion among global investors, especially when the sea routes connecting the two continents of Eurasia, the Red Sea, and the Strait of Hormuz, have been affected. More and more large container ships are choosing to bypass through the Cape of Good Hope, which not only affects travel time but also raises concerns for investors about whether such changes will lead to unpredictable chain reactions. Faced with such a tense situation, the price of gold has remained above $2,000 since late November, and once the tension expands to other regions, it will further boost market risk aversion and inflate commodity prices.

Apart from active warfare, 2024 will witness elections of varying scales globally, with four major elections drawing international attention. The presidential election in Taiwan in January directly influences the situation in the Taiwan Strait, indirectly impacting the power struggle between China and the U.S. The results will play a significant role in guiding the political and economic landscape of East Asia for the next few years. In March, Russia's presidential "election," though expected to see Putin's re-election, could lead to changes in Russia's governing policies if the Ukraine-Russia war remains deadlocked or takes an unfavourable turn for Russia, influencing the entire political and economic trajectory of Europe. The Indian parliamentary elections in April and May attract global attention due to India's strategic value in balancing China's influence and its economic growth amid the recent trade tensions between China and the U.S.

The highlight, of course, is the U.S. presidential election at the end of the year. The potential candidacy of the controversial Trump remains uncertain. The deepening divide within the U.S. society may hinder the next president's ability to address international tensions effectively, and investors should closely monitor these developments.

On the economic front, major stock markets performed well in 2023, with the Nikkei Index leading at 30% growth, though not considering the depreciation of the yen. The S&P 500 and Euro Stoxx 50 indices rose by 24.5% and 17.3%, respectively, reflecting the optimism of global investors. Whether this positive momentum continues in the coming year depends not only on the aforementioned factors of war and elections but also on the direction of interest rates worldwide. Interest rates play a crucial role in daily life, affecting savings account interest rates and monthly mortgage repayments. Towards the end of 2023, non-U.S. currencies experienced a strong rebound, anticipating a potential shift to interest rate cuts by the U.S. Federal Reserve. This expectation is reasonable, considering the Federal Reserve's significant interest rate hikes in 2022 to combat rampant inflation. With inflation numbers slowing down and the economic pressure from rising mortgage repayments, the Federal Reserve may need to consider the potential negative consequences of further rate hikes on economic growth.

In summary, barring unforeseen events, 2024 is expected to mark the world's complete recovery from the Covid-19 pandemic. While the economic outlook is generally optimistic, geopolitical events, two ongoing conflicts, and several significant elections may lead to unexpected "black swan" events. Investors should closely monitor these developments and make timely and informed investment decisions.

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