Power Letters 2024: Bal Krishen, chairman and CEO, Century Financial

As 2024 is now upon us, the global economic landscape reflects the impact of significant events in 2023, particularly notable shifts in interest rates.

The US Federal Reserve’s decision to raise rates has led to an unprecedented surge, reaching levels not seen in over two decades, with the federal funds rate hovering between 5.25 per cent and 5.5 per cent.

Investors are now pondering the duration of elevated interest rates and the timing of potential rate cuts. Despite a Q4 recovery in 2023 favouring risk assets, concerns persist due to geological stress points and a slowdown in key global hubs.

Entering 2024, several growth and inflation scenarios could impact critical market assets — equities and bonds. While correlated movement is expected in some scenarios, decoupling is possible in others. Historical patterns suggest that peak rates are short-lived, often followed by sharp rate-cut cycles. Market consensus currently leans towards central bank rate cuts in the first half of 2024, driven by factors like falling rent inflation, weak demand, and a pullback in wage growth.

In the potential soft-landing scenario for the US economy, macro data suggests a base case with consumer spending and inflation likely to ease, leading to an overall dovish stance in central bank policies. While there will be degrowth, rate cuts and yield softening are expected to support US equities and bond markets without a significant recession. Corporate balance sheets may have a limited impact due to consumer spending degrowth and reduced capital expenditure cycles.

Conversely, a hard landing scenario implies a sharp growth slowdown, possibly entering a recession, prompting aggressive interest rate cuts by the US Fed. In this situation, bonds could perform well as a haven, but equities might suffer as companies control costs to meet earnings expectations.

Growth in full-throttle mode suggests positive equity returns and flat to negative bond returns, driven by strong economic growth and persistent inflation.

The intricacies of these scenarios suggest a nuanced and cautious approach for investors navigating the complexities of the evolving economic landscape.

Most economies in the GCC delivered stellar returns in 2023 supported by a surge in trading volumes and investor participation. This was driven by economic diversification and new listings. Dubai and Saudi Arabia were at the forefront, propelled by the momentum in banking and real estate stocks, as well as robust corporate earnings growth and foreign inflows.

Overall, the trend of strong performance is expected to gain traction in 2024, owing to an uptick in tourism, bilateral ties with international exchanges, and expected interest rate cuts. The World Bank expects the GCC region to grow at an improved pace of 3.6 per cent in 2024.

The GCC real estate market size is projected to grow at a continued annual growth rate (CAGR) of 5.13 per cent between 2024-2032, with Dubai’s real estate market alone expected to expand by 15 per cent in 2024.

Easing of foreign ownership restrictions, introduction of new visa categories, rapid urbanisation, and hefty capital investments by the government support the sector.

The year ahead brings with it opportunities but uncertainties, highlighting the significance of investors staying vigilant and adaptable to navigate these evolving market trends.