AI-related companies have all seen rapid growth and performance in their share price over the past year. Photo / Getty Images
By Matthew Hands, wealth management adviser at Jarden Wealth
OPINION
As investors, our goal is to identify the next big opportunities and emerging themes that will shape the future of business, society, and innovation.
So, what should we watch for in 2024 and beyond?
Artificial Intelligence (of course)
Just a few years ago it was difficult to fully grasp how AI would impact our lives, both positively and negatively. However, 2023 proved to be a pivotal year for AI, largely due to the rise of generative AI with applications such as ChatGPT.
In 2024, some of the standout performers have been from companies such as Nvidia, which has a strategic focus on providing high-performance chips essential for AI applications, which has seen its stock soar by over 161% as of July 2024.
AI-related companies have all seen rapid growth and performance in their share price over the past year, from developers of unmanned aircraft and vehicles to pioneers in energy management solutions. The AI boom is reshaping industries at an unprecedented pace.
According to the 2024 Comptia IT Industry Outlook Report, 22% of firms are aggressively integrating AI across products and workflows, while there are 33% of firms working with AI in a limited capacity as they navigate to understand its place in their workplace. With this rapid increase in demand, we are seeing a wave of new entrants in the market as they understand that AI frees them from disciplined and rigorous tasks within their businesses.
What we do know is that AI is still in the initial stages of development, and we are yet to understand how it will impact our work and personal lives in the future.
Lower inflation and interest rates
Lower inflation and interest rates have been highly debated topics globally over the past two years. With continued high inflation in 2024, positivity is growing within markets that central banks globally will lower their interest rates as inflation falls close to their ideal target inflation rate, in most cases near 2%.
While inflation has been harder to contain, recent trends suggest a downward trajectory, which we saw for New Zealand at the end of June quarter 2024. New Zealand’s annual inflation is now sitting at 3.3% down from the highs of 7.3% in 2022.
In response to this, banks in New Zealand have all started to move mortgage and term deposit rates down, anticipating that the Reserve Bank of New Zealand (RBNZ) will cut rates before the end of the year.
This pattern is also evident globally and at Jarden, we predict that New Zealand, the United States (US), and parts of Europe may experience rate cuts before the end of 2024. The key uncertainty remains the timing and extent of these cuts.
Small and mid-cap investment markets
In the US markets, small and mid-cap companies are those with smaller market capitalisations compared to the large-cap firms in the S&P 500 index. Generally, small and medium-cap companies are expected to have greater performance than large-cap companies in certain market conditions, with higher risks associated with investing in small and mid-cap companies, hence the higher return expectation.
Contrary to these expectations, the year-to-date performance tells a different story. The S&P 500 index has provided a return of 15.10% led by AI, technology, and financial sectors, whereas the mid-cap and small-cap indexes have closely returned 10.92% and 12.25%, respectively.
Lower interest rates benefit small and mid-cap companies more than their larger peers and investors will be looking for further evidence of falling interest rates which could unlock opportunities within these sectors.
Geopolitical – what are the risks?
Outside the Russia-Ukraine conflict, 2024 has seen the start of a new war in Gaza, expanding to a wider regional conflict that has drawn in Yemen, the US, and the United Kingdom (UK). This expansion has led to shipping disruptions across key routes, impacting on economic growth and inflation for the countries concerned.
With these conflicts continuing, the importance of democracy worldwide will be of significant importance as voters in the US, India, Indonesia, European Union, and UK all take to the polls this year.
While some of these elections have taken place already, the US elections in November will be the ones to watch as a change from the current Democrat presidency could lead to high uncertainty geopolitically, including China-US relations.
As we navigate the ever-evolving landscape of investment opportunities in 2024 and beyond, AI stands at the forefront of innovation and market performance.
With the anticipation of lower interest rates and the dynamic nature of small and mid-cap investment markets, investors are presented with many opportunities to capitalise on. But amid the potential, we must be vigilant of the geopolitical risks that still influence economic growth and market stability.
Looking ahead, it is the adventurous organisations that embrace AI and adapt to changing market conditions that will succeed in this new era of investment.
Matthew Hands is a wealth management adviser at Jarden.
Jarden Securities Ltd is an NZX firm. A financial advice disclosure statement is available free of charge at jarden.co.nz/our-services/wealth-management/financial-advice-provider-disclosure-statement/.
Full disclaimer available at: jarden.co.nz/wealth-sales-and-research-disclaimer
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