Commsec 2024 Outlook: Lithium, AI, cybersecurity – the biggest themes to watch for
In 2023, the ASX Tech sector led a stock market comeback as investors recalibrated their view on interest rates.
The consumer Discretionary sector also had a good year as inflation worldwide moved in the right direction towards desired levels (in Australia, it’s 2-3% and in the US, it is 2%).
As we look ahead into 2024, all eyes will be on inflation readings, and whether central banks will cut or lift rates even higher, raising the risk of recessions occurring.
Craig James, chief economist at CommSec, expects the ASX 200 index will lift to 7,300-7,600 range by June 2024 (currently at 7,501).
”Our views haven’t changed. But now central banks have done the heavy lifting, and 2024 will be especially important for investors to determine how quickly the inflation goals can be achieved, and what this means for where financial investments are headed,” he noted.
James added that the bond market is always a great guide for investors.
“If longer-term yields notably ease, then the implication is that tighter monetary policy is working to slow demand, reducing inflationary pressures,” he said.
As far as thematics go, in 2023 lithium (especially use in electric vehicles), weight-loss (Wegovy and Ozempic), artificial intelligence (AI), cybersecurity, and ESG have all been the talk of financial markets.
And that is unlikely to change in 2024, says James, adding that investors must instead answer these three key questions from each of those thematics:
1/ who are the winners & losers,
2/ are the issues or trends mania or mainstream;
and 3/ what will be the short and longer-term influences?
Global car manufacturers have been hastening plans to replace fossil fuel with electric vehicles, and lithium is the key ingredient in the lithium-ion batteries that drive electric vehicles.
According to Statista, by 2030, it is projected that the world’s lithium supply will increase to more than 2.14 million metric tons.
Despite this threefold lithium supply growth from 2022, is is expected there will be a supply shortfall in 2030 of around 2.30 ~ 2.45 million metric tons.
“With the year-on-year increases in global lithium demand expected to be considerable over the next decade, significant lithium deposits will need to come online every year in order for supply to keep up with demand increases,” says Statista.
Australia is estimated to account for 47% of global production, and has the second largest level of reserves behind Chile.
Artificial Intelligence (AI)
Businesses have been stampeding to get their own versions of AI. Depending on who you talk to, AI is either the saviour for companies seeking to lift productivity, or it is a major global threat.
“Given the range of potential uses and benefits, it will be important for investors to include AI as one of the issues to cover off when researching companies,” said James.
Some companies such as Apple and Amazon have already been accused of falling behind on AI when compared with Microsoft and Google; others like Nvidia have benefitted the most.
“AI use could lift at a logarithmic pace over the next few years. So it’s important for investors to keep abreast of new technological developments,” said James.
As technology continues to affect more of our lives, the security of home, office and corporate systems is paramount.
“While having measures to prevent hacks in the first place, the importance of back-up and redundancy systems is vital.
“And, in the worst case where a hack has occurred, investors should focus on the impact it has on the reputation of the company,” said James.
While it may appear odd to include weight-loss drugs on the list of issues to watch, they have been cited as affecting the outlook for health and recreational stocks, said James.
“For instance, some brokers contend that wide use of drugs like diabetes treatment, Ozempic, and prescription medication, Wegovy, could reduce demand for sleep apnoea products, marketed by companies such as ResMed (ASX:RMD).
Environmental, social and governance (ESG)
The importance of ESG has significantly grown over time, but James expects this to continue, increasingly taking precedence over traditional investor considerations.
“The share prices of individual companies and the performance of sectors may potentially be influenced by the changes in investment behaviour,” said James.
“A number of sustainable exchange traded funds (ETFs) are available on the Australian sharemarket that meet ESG standards but returns over time have been mixed.
“Investors can use screener-type tools to narrow the search to stocks and ETFs that meet their ESG requirements.”
The views, information, or opinions expressed in the interview in this article are solely those of Commsec and do not represent the views of Stockhead.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.