Mark Hawtin, Investment Director, GAM Investments has commented on the outlook for growth equities in 2024.
He said: “When we put all the 2023 drivers together we see a base case scenario that is very compelling for growth equities. It is likely that inflation will remain stubborn but in a more palatable range below 4-5%. This would allow interest rates to remain ‘peaked’. The mere sniff of softer economic growth in November and the more than 50 basis points decline in US 10-year yields led to a sharper move up in equities. Growth fundamentals have not blinked, with over 90% of S&P technology company earnings beating expectations in Q3 2023. We do not expect the next few quarters to be any different. Growth remains strong.
“However, the valuation of the M7 now appears stretched relative to the market. On the broadest measure, the S&P 500 trades on 18x 2024 expected earnings (Goldman Sachs); this is above the average levels of the last 30 years. However, the equal-weighted S&P trades at 14x 2024 earnings, at the lower end of the average 30-year range. The forward PE of the M7 names is 29x and this, we believe, is the key factor in our base case that growth equities will remain robust but that the winners will come from below the M7 names. The artificial intelligence (AI), healthcare, storage, and Software as a Service (SaaS) themes will drive the best returns, in our view – it is a bottom-up stock pickers’ market for 2024.
“The wild card for disruptive growth will be China, where valuations have sunk to ridiculously low levels. Efforts to stimulate growth in the Chinese economy against a backdrop of ultra-low inflation should be rewarded with outsized returns in equities and for this reason, we believe the macro and geopolitical risks are more than priced in.
“In summary, we believe growth equities will continue to perform well in 2024, led by names outside the M7, with China as a good risk/reward wildcard.”
