Seven big surprises in 2024
Investors have had a wild ride in 2024, from worries over elections to the growing dominance of ‘Big Tech’ and ongoing conflict in Ukraine and the Middle East.
While asset managers try to forecast events and predict changes in market sentiment, some things do happen unexpectedly and take everyone by surprise.
In an investment update for the fourth quarter of 2024, Old Mutual portfolio manager Jason Swartz outlined some of the things that surprised the investment team at one of South Africa’s largest asset managers.
Swartz explained that this time last year, investors were deeply concerned about the looming elections in South Africa and the US, geopolitical tensions and interest rate cycles.
This picture has shifted markedly since, with investors reacting to several shocks throughout 2024 that were unrelated to these concerns at the start of the year.
So far in 2024, the sector that has ridden these waves the best is locally listed property, which has outperformed all asset classes.
Global equities, South African bonds, and local equities have all returned around 20% for the past year, which is surprising that all three have performed well simultaneously but not surprisingly on an individual basis.
The main seven surprises for Old Mutual in 2024 are listed below, with a brief explanation as to why these turn of events were unexpected by the asset manager.
1. The formation of the Government of National Unity (GNU)
Swartz explained that Old Mutual largely expected the ANC’s support to drop below 50% in the general elections in May but not that it would create a grand coalition to stay in power.
It expected that the MK Party would eat into ANC support in KwaZulu-Natal and parts of Gauteng and that the EFF would also come under pressure.
However, Old Mutual and its political analysts were surprised that the ANC chose to form a coalition with political parties that were not ideologically aligned with it.
Such an arrangement would also be easier to manage and maintain, in addition to allowing for consensus on policy.
The GNU’s outcome was better than Old Mutual expected, injecting fresh optimism into the local economy and financial assets.
2. South African bonds the ‘comeback kid’ of 2024
Closely related to the formation of the GNU is the stellar performance of local bonds in 2024, which have outperformed all of their peers so far.
Swartz said Old Mutual did expect the end of the election to boost the bond market to a limited extent as investors gained certainty about South Africa’s political future and fiscal policy.
However, the asset manager did not expect that the formation of the GNU would see yields on government debt fall from 12.5% to 10% in a few months.
This significantly impacts local debt-servicing costs and the overall cost of capital in the South African economy, potentially boosting economic activity.
Swartz attributed this positive development to increased investor confidence in the government’s fiscal consolidation pathway.
3. S&P500 and Big Tech continue to dominate investment markets
This may not have come as a surprise to many, but certainly, during the year, it became increasingly unlikely that the US stock market would continue to ‘melt-up’, driven by Big Tech stocks.
Swartz explained that these companies are highly valued and not without reason, but still, many would have expected their share prices to come under pressure as the global economy appears to be slowing down.
Technology companies tend to be valued higher due to their ability to grow more quickly than traditional companies and their high cash-generative nature.
However, this trend was largley expected to flip at some point, with earnings growth and thus the performance of the US stock market, to be driven by more traditional companies and perhaps smaller businesses.
Being surprised by this does not mean Old Mutual missed out on the rally, with the asset manager ensuring that kept clients’ portfolios exposed to US assets to benefit from any potential growth.
4. Bank of Japan raising interest rates
Swartz said perhaps the biggest suriprise of 2024 was that the Bank of Japan decided to raise interest rates, albeit briefly.
This was the first time since 2006 that the Bank of Japan decided to raise rates after a period of 18 years with ultra-low interest rates.
The decision to raise rates resulted in extreme volatility in financial markets as US investors unwound their “Yen-carry trades”, resulting in global equities plunging.
US investors had been raising debt in Japan at ultra-low interest rates and using the cash to invest in US-based assets to generate a return. It was effectively seen as a ‘free money’ loop.
The raising of interest rates in Japan briefly broke this loop and set financial markets into wild swings. Swartz said this, in hindsight, marked the beginning of a new investment cycle with added volatility.
5. The ‘Red Sweep’ in the US election
Swartz said Old Mutual was, once again, not caught out by the event itself but moreso by the extreme nature of it.
Markets prior to the US election in early November had largely priced in a Donald Trump victory, but not to the extent that was revealed after the votes were counted.
Swartz said very few analysts and commentators predicted the Republicans would win the White House, Senate, and the House of Representatives – effectively giving Trump a clean slate to implement his policies.
The asset manager was also pleasantly surprised by the rapid appreciation of US-based investments in the election aftermath as ‘Trump trades’ played out, greatly benefitting its portfolios with exposure to the US.
6. Gold’s record rally
The price of gold has steadily risen to new all-time highs throughout 2024, reaching a peak of $2800 per ounce in recent weeks.
Swartz explained that this rally in itself was not surprising, rather, the reasons behind the rally were particularly revealing.
There was no evidence of any fundamental drivers behind the rally in gold prices, with retail demand flat, interest rates remaining elevated throughout the year, and no sustained uncertainty until the US election.
Rather, the rising price of gold has been driven by central bank buying in China, India, and Russia as countries look to reduce their reliance on the US dollar as a reserve asset.
These countries are wary of any potential impact from US sanctions and see gold as a relative safe haven in comparison to US-based investments in hard currency.
7. Oil price lower than at the beginning of 2024
The final surprise for asset managers was that the oil price is currently lower than it was at the beginning of the year.
This is despite production cuts from the Organisation for Petroleum Exporting Countries (OPEC), the ongoing war in Ukraine, and the conflict in the Middle East.
Typically, these factors would drive oil prices higher, but that has not been the case so far in 2024, taking markets by surprise.
Swartz attributed this largely to the dwindling influence of OPEC as the US and Brazil ramp up supply and the fact that the conflict in the Middle East has not disrupted oil supply from the region.
Oil prices are also set to trend even lower in 2025 as the conflict in the Middle East slows down, and OPEC reviews its production cuts to maintain market share.
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