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Navigating the 5 Crucial Issues for Investors in 2024

INVESTINGNavigating the 5 Crucial Issues for Investors in 2024

This is likely to be a weak year for the dollar, and chronic inflation could be a problem for the zloty. This is one of the five issues that could prove to be the most crucial for investors.

The broad and free release of ChataGPT in late 2022 was akin to Edison lighting the streets of Manhattan 140 years earlier. It also spurred tech giants to compete more intensively and allowed for a “democratization” of the use of artificial intelligence in much wider circles.

This is a process that no one can stop. The question is how this will translate into the pace of growth and corporate results. AI should change our approach to the long-term prospects of markets.

“Something that is expensive today in the aftermath of euphoria can be even more expensive tomorrow. It is not easy to buy high-priced assets, but as long as it is not absurdly expensive, regular investing of moderate sums in the best companies might not be a bad idea,” says Dr. Przemysław Kwiecień, Chief Economist at XTB in an interview with MarketNews24.

Geopolitics is a topic that markets wake up to from time to time and quickly forget. However, an exceptionally important event is soon ahead of us: the Taiwan elections scheduled for January 13, which will impact Sino-Taiwanese relations. Pre-election polls consider the maintenance of the political status quo to be the most likely scenario.

Taiwan is super important for the global semiconductor market, with TSMC having a market share of 58%, compared to its biggest competitor Samsung at 12.4%.

“China seems cheap, but the risk of investing there is quite high, and precious metals can also be a form of portfolio diversification with geopolitics in mind, even if gold is not particularly cheap today.”

Over a year ago, at the turn of October and November, the dominant narrative was about recession and energy crisis in Europe. The market was dominated by pessimism. Currently, we are precisely at the opposite extreme of market sentiments. This is not only about the level of valuations, but also the macroeconomic scenario that is being assumed. It’s like a happy ending in a romantic comedy.

Many aspects of the economy in 2023 have turned out exceptionally well. Inflation in the Western world has fallen faster than expected, and signals that could provoke concerns about its persistence have disappeared. At the same time, the economy resisted the slowdown that seemed inevitable. Not only did consumption not decrease, PMI/ISM services held up solidly, and indices of consumer optimism increased.

“The macroeconomic weather is currently really good, but not everything can continue to go well, hence it’s worth observing the incoming data,” XTB’s expert comments on the third of the chosen topics.

The Fed did a not-so-bad job regarding inflation, especially considering it was quite delayed. Investors are waiting for the pivot, betting that the Fed will decide to make its first interest rate cut in March. Soft landing, disinflation, rate cuts – it’s hard not to bet on a bull market in such circumstances.

More conservative investors have the luxury of being able to “store” a portion of their funds in money market ETFs or short-term bonds.

Will this be a year of a weak dollar? An actual Fed pivot is bad news for the dollar. However, whether the US currency will lose value is not predetermined. First, Europe has a worse macroeconomic situation, and the pressure to cut rates there may be greater due to a higher risk of recession. But, above all, the dollar struggles in a scenario of rapid economic growth.

The dollar is still not particularly cheap. The current discounted scenario – a soft landing and rate cuts – is potentially the worst scenario for the US currency, which would lose value as it did in late 2016/17.

Adding to the issue of the zloty’s valuation, we are currently in a bit of a honeymoon phase. A new government, adoption of the ECP, pats on the back in Brussels. On the other hand, the prospect of chronic inflation higher than that of trading partners is appearing, which will intensify the already evident overvaluation of the zloty.

A dollar below 4 zlotys may seem cheap, but it is not very cheap. Just as 5 zlotys seemed extremely unattractive, and above 4.50 it encouraged investing in currency-protected ETFs, a more neutral attitude should now dominate.

“The zloty is slightly overvalued, as is the dollar, but these are not extremes,” comments Przemysław Kwiecień from XTB on the fifth topic of conversation. “The worst thing for the dollar is when the Fed cuts interest rates and we have good market sentiment because capital then flows from the dollar to other currencies.”

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