Vice versa: why 2024 is set to rewrite the story of 2023

Get set for a 2024 that flips the script on the story of 2023, with the end of big tech outperformance and a resurgent Japanese yen. CHRISTOPHER LEES explains

• Magnificent Seven peaking
• Japanese yen set for recovery
• Find out about Pendal Global Select Fund

The outperformance of America’s Magnificent Seven tech megacaps will come to a halt in 2024, paving the way for a return to market leadership for small and midcaps stocks, says Pendal’s Christopher Lees.

Big tech dominated markets in 2023, with the so-called Magnificent Seven – Amazon, Apple, Google, Meta, Microsoft, Nvidia and Tesla – collectively outperforming global equities by 73 per cent.

But as the earnings and price performance of the tech stocks begins to peak, the market baton is set to be passed back to a fast-recovering small and mid-caps sector, says Lees, who manages Pendal’s Global Select fund. “2023 was an extraordinary year.

But we expect the Magnificent Seven to start underperforming the overall index in 2024. This really could be the beginning of a new trend change – a ‘vice versa’ where small and mid-cap stocks outperform mega caps,” says Lees.

Lees – speaking above via video update to holders of the Pendal Global Select fund – says 2024 is shaping to provide a number of ‘vice versa’ performances when compared to 2023.

Apart from the end big tech’s outperformance, the year is also likely to be characterised by a peak in US market outperformance as emerging markets take the lead, and renewed strength from the historically weak Japanese yen.

These changes have profound implications across equities, fixed income and currency markets, says Lees.

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“In 2023, the US improved and emerging markets deteriorated. That’s one of the first things we think might be a vice versa in 2024 with the US economy slowing and emerging market earnings recovering.”

Lees says emerging markets inflation rates are falling and emerging market interest rates still have quite a way to come down. Meanwhile, cyclical indicators in emerging markets are recovering very strongly.

“We expect emerging market earnings to recover very strongly as well,” he says.

“So you put those two things together, the prospect of falling interest rates and accelerating earnings growth in emerging markets and that’s why we think emerging markets will perform much better in 2024 than they did in 2023.”

Lees says another change could come from the end of historical weakness in the Japanese yen, which is trading at a 50-year low relative to other major currencies.

“The Bank of Japan was the last central bank with negative interest rates. Many people think that will change in 2024.

“Recently we’ve seen the Fed do a dovish pivot on interest rates and we’ve seen the Bank of Japan loosening yield curve control.

“Both of those we think are early warning signs and very, very bullish for the Japanese yen in 2024.”

Find out more about Pendal Global Select Fund

About Chris Lees and Nudgem Richyal

Chris Lees and Nudgem Richyal are senior fund managers of Pendal Global Select Fund. The pair have been working together as investment managers for more than 20 years.

Chris has more than 32 years of investment industry experience. He joined Pendal Group’s UK-based asset manager J O Hambro Capital Management (JOHCM) in 2008 after spending 19 years at Baring Asset Management, ultimately as head of its global sector team.

Nudgem has 22 years of industry experience, joining JOHCM with Chris in 2008. He was previously an investment director with the Global Equity Group of Baring Asset Management, where he worked closely with Chris since 2001.

* Source: JO Hambro, Morningstar universe – Global Large-Cap Growth Equity funds, Lipper survey – Sector quartile ranking: IA Global, and Lipper Global Equity Global domiciled in the UK, offshore Ireland, or offshore Luxembourg. Lipper ranking is from A GBP Class. Please note that these performance figures have not been calculated in accordance with the Financial Services Council (FSC) standards. 

About Pendal Global Select Fund

Pendal Global Select Fund is a global equities portfolio with a distinctive, yet proven approach and a 17-year track record of outperformance. Since its inception, the underlying strategy (JOHCM Global Select Fund) has delivered top-decile performance in Lipper and 2nd decile in Morningstar.*

This presentation has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426. It is not to be published, or otherwise made available to any person other than the party to whom it is provided. PFSL has appointed J O Hambro Capital Management Limited (JOHCML) as the investment manager of the Fund. JOHCML is a wholly owned subsidiary of Perpetual Limited and a related party of Pendal Institutional Limited. Pendal Institutional Limited has appointed JOHCML as its authorised representative (Representative number 001280039) under its Australian Financial Services Licence.

PFSL is the responsible entity and issuer of units in the Pendal Global Select Fund (Fund) ARSN: 651 789 678. PFSL has appointed J O Hambro Capital Management Limited (JOHCML) as the investment manager of the Fund. JOHCML is a wholly owned subsidiary of Perpetual Limited and a related party of Pendal Institutional Limited. Pendal Institutional Limited has appointed JOHCML as its authorised representative (Representative number 001280039) under its Australian Financial Services Licence.

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About Pendal

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