Capital Group 2024 Outlook.pdf2999.5KB
Notes
- Given that 2023 was a difficult year, it’s logical to expect an earnings rebound in 2024, which could provide a runway for stocks to head higher. But there are several risks that could result in substantial earnings revisions, including sluggish consumer spending in the face of persistent inflation, slowing economic growth in Europe and China, and rising geopolitical risk from the wars in Ukraine and Israel.
- “I don’t think it’s going to be a terrible year for corporate earnings, but I think we’re more likely to see 6% to 8% growth in the U.S.,” says Capital Group economist Jared Franz, “and potentially higher in some emerging markets.”
- With investors swept up in the artificial intelligence fervor, valuations for dividend-paying stocks have quietly drifted toward multi-decade lows compared to the broader market.
- “It is difficult to know when a cycle will turn, so investors may want to look for companies with growth potential but also businesses that pay dividends, which can help mitigate market volatility,” says equity portfolio manager Diana Wagner. “Valuation is important, but it is essential to distinguish between real values and companies with deteriorating business prospects.
- Japanese companies have been known for hoarding cash and subpar governance. To accelerate reforms, the government and Tokyo Stock Exchange are urging firms to improve profitability and boost stock valuations by reducing cash on balance sheets and shedding underperforming businesses. About half of Japanese companies have positive net cash positions, while a third have price-to-book values lower than the value of their underlying assets. Investors have noticed. In 2023, Japanese equities rose to highs not seen since the late 1980s. “I’m more positive on Japan than I’ve been over the past two decades,” says equity portfolio manager Eu Gene Cheah. “I'm taking a measured approach to investing, but more aggressive steps could signal a true paradigm shift.” Many Japanese companies are prominent innovators in factory automation and niche technologies. For instance, SMC is a leader in robotic equipment components and semiconductor production, while TDK is among the largest manufacturers of high-end electric vehicle batteries. Sustained reforms could unlock opportunities across industries.
