SUMMARY
With a global economic rebound in store, we see Latin American GDP rising around 2% in 2024. Against this backdrop, we see selective regional opportunities in local currency rates, foreign currency debt and equity markets.
Global markets could see another year of positive returns in 2024 under our base case scenario of post-Covid normalization of the economy. The strong November-December rally might have brought some of the expected 2024 returns forward. Political uncertainty and geopolitical challenges will be a strong feature this year. This is likely to mean that, whilst positive, markets returns could be more muted than in 2023.
The global economy should enter a new cyclical phase in 2024. At the OCIO we expect a bottoming of activity in the first half of the year, but no recession. A rebound of the economy should follow in the later part of the year. Inflation in developed markets should continue to decelerate towards Central Bank targets allowing them to pivot. The Fed could cut 100bp in 2024 allowing for a more visible growth trend to appear in 2025. Other mayor Central Banks should follow, easing global financial conditions and helping the slowdown reach a trough.
After a better than expected 2023, Latin America could grow around 2% in 2024. Inflation continues to recede, and Central Banks should continue to cut rates, easing financial conditions. External accounts remain well supported by commodity exports, foreign direct investment and portfolio inflows. Focus will remain on fiscal accounts and legislative reform agendas. Much of the policy and political noise that was expected in 2023 has not materialized and executive branch outreaches remain constrained by institutional frameworks.
Over half the world’s population will go through mayor elections in 2024, providing a potential source of uncertainty for global markets. In the US, another faceoff between Donald Trump and Joe Biden seems likely. Trump is currently leading in the polls. Mexico will elect a new President as well. Morena candidate and Lopez Obrador successor Claudia Sheinbaum will face coalition candidate Xochitl Galvez. Sheinbaum is leading comfortably in the polls. El Salvador, Panama, Dominican Republic and Uruguay will also hold general elections. Brazil and Chile will hold local municipal elections.
The 6-12 month Citi Research outlook for commodities is bullish for gold and silver; neutral-to-bullish for aluminum, nickel, platinum and sugar; neutral for zinc, soybeans and coffee; neutral-to-bearish for crude oil, copper, iron ore, wheat and cocoa; and bearish for lithium and corn. Beyond 2024, the long-term price outlook is expected to be bullish for copper and lithium. El Niño conditions have the potential to disrupt precipitation patterns and impact crop production, energy prices and inflation.
We find Latin American local rates, foreign currency debt and equity markets attractive under our global base case scenario and believe investors can benefit from selective opportunities as long as global risk appetite provides broad support to markets. Local interest rates offer local and international investors high real and nominal rates. Currencies are far from their most attractive levels and do present some risk as Central Banks continue to ease, so more active hedging strategies might be sensible for international investors. Dollar denominated debt has rallied in 2023, but history suggests it remains attractive given mid-to-high single digit nominal yields. Equities also rallied in 2023 but multiples remain depressed on a historical basis, and earnings should remain well supported by growth and commodity prices presenting investors with attractive tactical opportunities.
