It’s billed as a year of soft landing, with recession fears subsiding as interest rate cuts are expected to offer the much-needed support for growth around the globe. The global economy remained resilient in 2023 even as central banks raised interest rates aggressively to tame runaway inflation. US equities finished the year on a roll as the S&P 500 finished the year up by about 24%, affirming solid returns for investors amid the bullish run.
Fast forward, what could go wrong? That’s the big question in one of the most consequential years both on the economic and political front. Economists have already started to sound the alarm bells over pivotal events that could derail the economic boom experienced last year. Some of the events have the potential to rattle the markets. However, they also have the potential to give rise to unique opportunities that investors can take advantage of.
The Reel Shares Growth Equity Fund RELPV is a unique fund for tapping opportunities that crop up amid uncertainties on the global scene. The fund offers exposure to various investment products domestically and overseas. The fund’s investment approach is built around the following catalysts, which aim to deliver long-term capital growth.
Middle East Stalemate
Three months since Israel’s war in Gaza broke out, there are growing concerns over the conflict escalating into a vast conflict. The prospect of a full-blown war between Israel and Arab nations, mainly Iran, presents one of the biggest risks to the global economy. A broader conflict could choke off the global oil flows and push inflation higher.
Tensions are increasingly rising in the Red Sea in the aftermath of the US and the UK launching attacks in Yemen. Escalation of a full-blown war pitying Iran could affect oil supply on the global scene, resulting in prices surging to the $150 a barrel level.
Such an increase could rattle the global markets and trigger inflationary pressures, which could shave up to 1% off the global GDP. On the other hand, the spike could make energy stocks some of the best bets in the equity market.
Stalled Fed Loosening
A spike in crude prices adding 1.2% to global inflation could make it difficult for the US Federal Reserve to embark on monetary policy easing as expected. The global market rallied late last year in anticipation of the FED cutting rates in the first half of the year to ease inflationary pressures.
Economists have already warned that a resurgence in inflation would require the FED to stick to the high-interest rate environment in a bid to stem any inflationary pressure. The FED’s pausing on monetary easing could frustrate market expectations, something that could trigger cautionary actions as investors try to protect their portfolios. The FED sticking to high interest rates could make treasuries some of the best bets for investors for navigating the high-interest rate environment, as they tend to do well on high-interest rates.
The US is not the only economy expected to run too hot amid the high-interest rate environment. The European Central Bank and the Bank of England are also at the tail end of their tightening cycles. However, inflation risks ticking higher amid soaring geopolitical tensions in the Middle East could force the central banks to stay put on any easing plans. Such actions could put significant strain on the block’s economy.
Germany, one of the block’s biggest economies, is already feeling the pinch as a slowdown in China continues to add to the risks. Slow growth in China has always been bad news for Germany as its biggest trading partner. In addition, good news in China on the rise of electric car makers is also putting pressure on Germany’s auto companies as they are increasingly eating into their markets.
Nevertheless, China’s economy looks a shadow of itself after a botched recovery post-pandemic. A steady drip of stimulus has failed to have the desired impact. Economists expect the economy to grow by just 4.5% in 2024, down from a 5.25% growth in 2023. If the government fails to offer any stimulus or it arrives late, compounded by further property slump, then Chinese economic growth could slow to around 3%
The biggest risk in the Chinese economy is a continued property market slump that could trigger a financial crisis as it did in Japan in 1989 and the US in 2008. The economy could shrink even further, putting more pressure on the global economy, especially the country’s biggest trading partners, including Germany.
US November Election
Back in the US, the most critical election in the recent past that could have severe ramifications for the global scene is on the horizon. With the election in November shaping up as a rematch between Joe Biden and Donald Trump, the prospect of sharp policy reversal is becoming increasingly apparent.
With Trump emerging as a favorite to win the elections, the prospect of a 10% tariff on all imports into the US could be on the way. Such tariffs could force trade partners to retaliate, shaving up to 0.4% off US GDP.
The markets are expected to be uneasy heading into November amid the political uncertainty in the US. Soaring geopolitical tensions in the Middle East and the prospects of monetary policy changing significantly should pose significant risks to the investment landscape.
The Reel Shares Growth Equity Fund RELPV offers one of the best ways to navigate the uncertainties that could pressure the global economy. The fund invests at least 80% of its assets in equity securities and the remaining 20% in fixed-income securities. It invests in American and foreign companies of various sizes in diverse industries.
The fund seeks long-term capital growth for investors. It pursues an event-driven investment approach. With this strategy, the fund invests in companies that have catalysts that can drive big movements in their share prices. These can be companies that recently announced major changes or companies that are expected to experience material changes that could affect their stock prices.
For the initial investment, investors can purchase shares of Reel Shares Growth Equity Fund RELPV directly from Reel Shares or through its financial intermediaries.