Analysts predict investment strategy shift amid geopolitical changes

LONDON – As the global economy heads towards 2024, analysts are anticipating a shift in investment strategies that could see traditional sectors outperforming in the absence of an economic downturn. Improved geopolitics is expected to apply downward pressure on oil prices, which might benefit cyclical stocks, typically associated with industries sensitive to economic cycles.

With persistent inflation still a concern, investors might be prompted to divest from leveraged positions. The consensus among analysts indicates that few expect an increase in short-term interest rates, which would otherwise negatively impact sales of leveraged stocks. However, there is a minority view suggesting that rising long-term rates could affect bond yields. Should restrictive fiscal policies come into play, these yields could potentially drop below 3%.

The possibility of a flattening yield curve is also on the horizon, which is seen alongside a strong U.S. dollar. This combination is leading to recommendations for investors to pull back from emerging markets. Despite this trend, there’s a cautionary note against joining the crowded ‘short China’ trade, as both Chinese and UK markets hold potential to exceed market expectations. Notably, UK stocks are currently underweighted by investors, which could signal an opportunity for those looking to diversify.

In the tech sector, caution is advised regarding the Magnificent 7 large-cap tech companies. These firms have enjoyed overwhelming popularity among investors, but analysts warn that this overexposure could lead to their decline. As a result, leverage might gain favor over quality investments in the coming year.

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