Strategists Cautious of 2024 due to Geopolitical Instability and Crowded Election Schedule

The transfer of Palestinians who had been detained by Israeli soldiers from the Gaza Strip took place on November 20, 2023, as the struggle between Israel and the Hamas faction was still going on.

 The economic outlook for 2024 could be significantly impacted by geopolitical risks, due to the convergence of major wars and important elections in powerful countries around the world.

 As 2020 approaches, financial institutions are attempting to predict the investment environment for the upcoming year. They anticipate a tumultuous geopolitical climate as well as a marked difference in performance between various international regions, leading to a greater level of unpredictability and market fluctuation.

 In a survey of 130 corporations, Oxford Economics discovered that nearly 40% of the participants deemed the Israel-Hamas war to be a major threat to the worldwide economy within the next two years.

 Concerns regarding China and Taiwan as well as Russia and NATO were extensive, and geopolitical tensions were deemed to be the main business risk in both the short-term and the medium-term. 62% of businesses viewed geopolitics as a major risk to the global economy.

 Oxford Economics researchers indicated that the most recent survey showed two distinct possibilities: Deglobalization and the unceasing rise in oil prices, both of which could be caused by the intensification of geopolitical tensions.

 According to the International Monetary Fund, the world economy will decelerate to 2.9% in 2024. This is due to the fact that there is a great discrepancy between certain regions in terms of growth, with the U.S. and some emerging markets experiencing a stronger expansion, while China and the Euro Area are predicted to face difficulties.

 Goldman Sachs Asset Management's published investment outlook for 2024 on Monday pointed out that the upcoming elections in the U.S., U.K., South Africa, India, Taiwan and Russia will provide various potential outcomes that could cause the global economy to veer away from its current trajectory.

 Baker McKenzie's global chair stated that the US-China tensions are frequently occupying the thoughts of their customers.

 The asset management arm of the Wall Street giant pointed to potential issues that could arise prior to the November presidential election, such as pressure on government debt and fiscal paths in the United States. In addition, they noted that domestic socioeconomic challenges, like labor strikes and ongoing inflation, could hinder growth across major economies.

 The strategists at GSAM predicted that due to the growing geopolitical issues, more trade limitations will be put into effect, leading to an even greater economic separation. They anticipated that nations would be placing a high priority on economic safety in the upcoming year and beyond.

 The shift towards developed markets for the re-establishment and strengthening of critical supply chains, particularly those that are over-concentrated such as leading-edge semiconductors, may be the cause of this.

 Animosity between Russia and Ukraine, Israel and Hamas, and China and Taiwan

 Ronald Temple, the chief market strategist at Lazard, mentioned in a global outlook report recently that the world is heading towards a future of more frequent and more important disputes. Forecasting the exact results of any single geopolitical crisis is challenging, but the overall direction is clear.

 Navigating the ever-changing geopolitical environment could demand drawing on vast reservoirs of knowledge, according to Temple. This is because geopolitical matters that may have been overlooked in the past can now have an immediate effect on a company's supply lines and target market.

 Central banks will likely be unable to contain inflationary pressures due to the ongoing geopolitical conflicts and tensions, which will in turn further impede economic growth.

 It has been foreseen by Temple that the war in Ukraine shall persist for a long time, developing up until 2024. This is caused by the Ukrainian counterattack gradually losing its vigor due to winter and worries about the dependability of financial support and military assistance from the West.

 The EU Chamber of Commerce's President, Wuttke, considers the Xi-Biden meeting in San Francisco as a minuscule step in the correct direction.

 He stated that the only way to conclude the conflict is through a diplomatic accord, but both nations are still a long way from accepting the other's ambitions. He specified that Russia is looking to have control over all of Ukraine and Ukraine is determined to keep control of its borders.

 In regard to the Middle East, the most dangerous scenario would be the potential for the Israel-Hamas dispute to spread to other surrounding countries, including Iran, which could result in a regional battle with consequences that extend beyond the military realm. The greatest risk of such an escalation would be the disruption of energy transit through the Strait of Hormuz, where around 20% of the world's oil supply is transported.

 However, Temple argued that it is in the interests of Iran, Israel, and the United States to avert such a situation, and that the most economically consequential geopolitical tension is the multi-faceted conflict between China and the Western world concerning competition and Taiwan.

 The Democratic Progressive Party (DPP) is currently ahead in the polls for the 2024 Taiwan elections, which will lay the groundwork for the rest of the year. In comparison, the Kuomintang (KMT) is viewed more favorably by Beijing.

 Should the DPP secure a win, it is expected to heighten the strain between China and Taiwan. This is due to the DPP's inclination to proclaim formal independence, which is a line the Chinese government cannot cross.

 An image of Continuum Economics has been shared, which highlights that rate cuts will be the chief market driver in 2024.

 The outcome of the economic rivalry between China and the U.S. as well as worries about China's involvement in Taiwan has caused a fragmentation of the supply chain. Trade tariffs, restrictions, and post-pandemic logistical issues have caused developed nations to pursue "friend-shoring" or "near-shoring" principles.

 Temple noted that creating these plans has been more of a challenge than expected, as there is a lack of mobility within supply chains and a difficulty in teaching the necessary skills to workers in different parts of the world.

 Geopolitical disputes are leading to economic diversification, which in the short-term could have a negative effect on global expansion and may increase inflation.

 Temple highlighted that with sustained deflation, the U.S. Federal Reserve and other central banks may be able to consider lowering interest rates in the second quarter, which could reduce the obstacles to growth and stimulate capital investments in light of a potential economic resurgence.

Ensuring safety with semiconductor technology

 Semiconductors are playing an increasingly important role in security systems, providing a reliable and effective means of protecting data and other assets. They are becoming more widespread in a variety of applications, ranging from commercial to military use. Their ability to store and process information quickly and securely has made them indispensable in many fields. Their use is expected to expand even further in the coming years as the need for safety and security grows.

 Marc Nachmann, the head of asset and wealth management at GSAM, and his staff think that supply chains of vital minerals are likely to be noticed due to their significance in the move towards clean energy, and their potential fragility towards supply interruptions.

 According to GSAM, investors should not try to predict the market or formulate assumptions about political and geopolitical events. Instead, they ought to be proactive in their asset allocation utilizing thorough research.

 The strategists suggested that businesses which successfully cooperate with both governmental and corporate efforts to protect their supply chain and other resources as well as national security will be the ones that will excel in the long run. They further suggested that those who have the power to set prices, have robust business plans and maintain a healthy financial position should be the main focus.

 The public stock market could offer chances to get concentrated exposure to more recognized businesses that make semiconductors and semiconductor production apparatus, as well as to industrial automation and technology companies that are helping with the relocation of manufacturing.

 GSAM anticipates that the need for natural gas items will increase as countries look for budget-friendly, dependable and eco-friendly energy, while the emergence of more complex security issues is creating new prospects for cybersecurity systems and aerospace and defense technology companies.