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A new year, a new frontier?

Craig McAvinue By Craig McAvinue – 3 January, 2024

“It has been said that arguing against globalisation is like arguing against the laws of gravity.”

Stock and currency markets performance

Market Update December 2023 Stock

Data table is from Google Finance

Stock markets were up for December and for the year, so as is usual, the USD cash became less attractive and we saw the greenback giving some of its value back to other currencies.

Market Update December 2023 Currency

Data table is from Google Finance

Markets have a Happy New Year

So, we finished quarter four with two strong months as December followed November with markets in positive territory. I’ve referred in the past to the trend of cyclical quarter four gains and they played out once again in 2024.

The S&P 500 finished the year up over 24%. Whilst this seems like a great return, it is actually only the third largest annual gain in the last five years. The market stopped just short of its highest ever point of 4,796, closing at 4,769, a high for the year. Interestingly, the previous high point of the S&P was recorded on 31 December 2021, exactly two years prior.

Sp 500 2022 2023

So in simple terms, a pure S&P 500 index investment would be worth almost exactly what it was at the beginning of 2022. The huge losses that were experienced in 2022 were recouped almost to the dollar by the end 2023. This illustrates the volatility of the markets over the past two years: almost a V-shaped return, with the point of the V representing the lowest point in October 2022. Had you invested then you would have seen a 31% gain, although we all know that timing the market is more luck than judgement.

Investments in these individual S&P companies would have also yielded you dividends, although it would have been difficult to have matched inflation over the last two years even taking dividends into account.

The biggest driver of the S&P gains (as was the biggest driver of the losses in 2022) was the tech sector, with the movements of industry giants weighing heavily on the index’s overall performance. In particular, technology companies with a focus on artificial intelligence (AI) were the biggest gainers, two examples being Nvidia and Meta (which owns Facebook) with 2023 gains of 254% and 184% respectively.

Emerging v Developed

Emerging Developed Market

The anomaly amongst the markets tracked above was China, albeit its performance wasn’t poor enough to bring down the overall Emerging Market index.

“Emerging” and “Developed” markets and economies are terms that puzzle me. They are subjective and can often be used by investment managers to their advantage. I even tried using some AI tools today to try to understand if there is a definitive way to distinguish between the two, but to no avail.

I understand why China is labelled “Emerging” in that it still has enormous growth potential. Yet for many of its cities to not be seen as “Developed” is way off the mark, since from a technology standpoint they are decades ahead of many so-called “Developed” economies in Western Europe.

world market 2023 v2

I’ve also seen South Korea and Singapore referred to as Emerging Markets. Many of the best performing fund managers in this sector are investing heavily in these countries, which in some ways lead the world in their level of development.

An ETF (Exchange Tracker Fund) is often the best way to invest in a particular country. The S&P 500 is generally considered the US market tracker and its 2023 performance ranks eighth worldwide. The seven countries above it were Taiwan, Spain, Mexico, Brazil, Greece, Italy and the overall best performing country, Poland. An interesting mix of “Emerging” and “Developed” markets, though which are which could definitely be up for debate.

It’s also worth remembering though that whilst these country’s markets offered a good return last year for local businesses, the US remains home to the majority of global giants. S&P companies like Google, Amazon, McDonalds – the list goes on and on – ply their trade globally, including all the top performing countries. So in some ways measuring a country’s growth and its place as a “Developed”, “Emerging” or even “Frontier” market is more aligned with the numbers of Facebook users or Starbucks coffee shops than the share performance of the local supermarket brand.

So for most it’s these global businesses where most of your equity investment should be focused. You spread your geographical risk, though it’s always worth a look around at other countries, even if their place in the market hierarchy is somewhat ambiguous. 

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