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Great risks create great opportunities?
There has been a flock of “black swans” in the last years bombarding business and private households with bird droppings left right and centre. Totalitarian lockdowns imposed by panicked bureaucrats upon its subjects have wrought structural changes and disrupted supply chains in many economic sectors, such as real estate, travel and entertainment business.
Helicopter money spray fuelled inflation and forced central bankers to increase interest rates so quickly and so high —a phenomenon scarcely witnessed in recent memory.
Exploding bombs and bloodshed in Eastern Europe and Middle East have buried for many years ahead hopes of the Chinese elite to connect Asia production hubs with European and African markets.
Simultaneously, the cheap energy supplies from Russia to Europe have been cut off coupled with shutting sales of EU goods and services to Russia. Ukraine, bleeding but still fighting has lost 40% of its GPD and around 30% of its inhabitants.
Capital flows from creditors and investors seem to be guided by KYC and EGS principles rather than common sense.
What would one advise to an investor and a creditor to do in 2024 under given circumstances?
Real Estate
Given general consensus that major central banks will start cutting interest rates within next 12 months with a view that such cuts will lead to rate about 3.5%-4.0% by end of 2025, one can be quite certain that stock indexes will raise. At the same time, despite all negative events that have happened to the global economy lately, stock prices are already going through the ceiling.
EU Banking Sector
With decreasing interest rates, we would recommend to look favourably at real estate sector. Recovering travel industry will most likely help hospitality sector most. Greying population of majority G20 countries and changes of demographics will have impact on residential property market. Great opportunities could be found in real estate project hampered by the lockdowns and sales disruptions. Some of such projects represent special situations scenarios, where a lender can ask an extra premium for liquidity, while having a good collateral.
Investing in EU banking sector may be one more good opportunities to generate alpha returns. While better capitalised than US or Asian banking sector, EU banks will benefit from higher net interest margins, resulted from decrease the “risk free” rates.
Private equity funds
Private equity market may pay a premium to a PE and VC investors. There has been a sharp decline in deals number and appetite to equity placement, which forces founder to pay more for liquidity.
In terms of geography, the economic outlook favours India in Asia, Kazakhstan in Central Asia, UAE in the Middle East, Uganda and Tanzania in Africa, Venezuela in South America and USA in North America.
The EU is an outsider, its engine, German economy is predicted to turn out 0.3% of GPD growth in 2024.
However, from the investor’s point of view, it is the undervalued stock which is a best buy. Thus, EU may be a great opportunity to do cherry picking.
From a creditor’s point of view, it is the down-side risk that is most important. Hence, countries with best GDP forecast, with dropping interest rates in coming year, may represent good value to lock in high interest rates and benefit from improved credit strength of borrowers.
To give you a qualified view on the global outlook, we suggest to read the Economist Intelligence Unit report, one of the best think tanks in the world to analyse economics world-wide.
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