Björn Jesch, global chief investment officer for German asset manager DWS, delves into the top 10 investment themes poised to shape the financial landscape in 2024.

Björn Jesch (pictured), global chief investment officer at DWS, thinks that investors don't need to turn their portfolio upside down in 2024. The 10 topics, in his view, are not the hottest stock-market tips for the start of 2024, but topics which he thinks will be relevant for investors in 2024 and beyond.

What Jesch wants to provide some longer-term food for thought. He believes it is a good time to reflect on which topics have been over- or underestimated in the past year. “Even when using an abundance of human and artificial intelligence, the markets always supply surprises. But that is ultimately what makes dealing with capital markets so appealing. It is important, however, to know the limits of one’s knowledge and where risks should be avoided,” he said in a note.

He believes that his top 10 themes may help make this a little more tangible:

1) Female finance: The benefits of diversity. Jesch thinks that more needs to be done to get women into finance, to encourage them to invest and improve education on gender, diversity and finance. 

2) Cryptocurrencies: The portfolio perspective. As a relatively young asset class, cryptocurrencies, in his view, could be a valuable portfolio addition in an uncertain (rather than just a risky) world. 

3) Electrification: The innovator's dilemma. It looks as though current plans for using renewable energy as the most cost-effective solution to reduce greenhouse-gas emissions might shake up many established business models. 

4) Circular economy: Squaring the circle. Reducing waste, designing affordable goods, and moving towards a carbon-neutral and ecologically sustainable circular economy is not only natural but can also be profitable, in his view. 

5) Quality: A guide for stock pickers. In theory, quality investing makes a lot of sense in an uncertain world. In practice, it takes a great deal of skill and effort. At a time of geopolitical, economic and technological uncertainties, Jesch believes that the idea of compounding returns by investing into a proven winner is appealing. In identifying high-quality stocks, the traditional distinction has been in terms of metrics encompassing offensive and defensive characteristics.

6) Bonds – a strong year ahead. After an historically long dry spell, 2024 could become a good year for bonds, in his view. A resurgence of inflation remains a risk, but the high carry provides some security cushion – especially for corporate bonds. Today, government bonds are yielding almost 5 per cent in the US, almost 3 per cent in Germany and almost 1 per cent in Japan, Jesch said.

Bonds were already looking attractive again at the beginning of 2023, after they had experienced one of the worst crashes in post-war history. Jesch also likes corporate bonds, particularly the investment-grade segment, due to its favourable risk/return profile. In the high-yield segment, he prefers Europe to the United States. Other wealth managers also favour bonds in 2024. Paris-based Indosuez Wealth Management, Carmignac, UK wealth manager Brown Shipley, HSBC Global Private Banking, UBS Global Wealth Management all see value in quality bonds in 2024. See more here and here. 

7) Real estate – time to enter? Higher yields have proven to be a formidable headwind for both residential and commercial properties, but fundamentals have generally been stalwart, Jesch continued. Nervousness has been most visible in the dramatic price swings of listed real estate investment trusts (REITs). REITs, which have lately staged a recovery, have historically led private markets by about one year. Fundamentals, meanwhile, have generally been stalwart, with tight vacancies and rising rents in many major markets and segments.

8) Asia Pacific: regional diversification. With its diverse strengths, Asia remains a global growth driver in his view. It is worth taking a look at the entire region, not least as a potential counterweight to the dominance of US equities. Diversified globalisation or friendshoring is leading to changing trade flows, with regionalisation on the rise, particularly within Asia, Jesch said.

Western companies wanting to reduce their dependence on China often benefit China's emerging neighbours. Investors who do not feel comfortable in China’s capital market due to regulations and uncertainty may be able to participate in its size and growth via neighbouring countries, particularly Japan and South Korea, he added.

The headwinds from rising US interest rates and US dollar appreciation are abating. After a difficult year, China should slowly regain its footing. Japan is currently shining more than it has for years. Wages and inflation are at last rising again and companies are accelerating their restructuring.

9) Investing in the age of artificial intelligence. Before very long, knowing how to engage with artificial intelligence (AI) and providing it with context and nuance will be essential for any student or white-collar worker. Generative Al promises big boosts in productivity. Its varied uses are already becoming clear in areas such as programming or summarising existing human knowledge of potential relevance for a specific client question in, say, business consulting. Large language models (LLM) can also offer a much more natural user interface with specialised applications suited to the task in question. The trick is to assess their replies with specific goals in mind. 

10) India: delivering on many promises. India’s structural strengths – demography and democracy – are well known. Business-friendly politics, a thriving service sector and geopolitics add to the positive picture. Decades ago, India’s stock market ceased to be a hidden pearl. It has performed three times better than the Asia-Pacific Region since 2003 and has even outperformed the almighty S&P 500 by 20 per cent since May 2020, Jesch continued.

Since the 1990s, it has also become an increasingly integrated and liberal market economy and has grown steadily by 6 to 7 per cent over the past 20 years. He expects similar growth rates in 2024, driven by a competitive manufacturing sector and its growing service sector.