The beginning of this year has been volatile. With the US Federal Reserve dashing hopes of a rate cut in March as well as high bond yields, global markets have been in a cautious mode.
As investors kick-off 2024 amidst uncertain market outlook, tentative economic growth, and geopolitical turmoil, global brokerage house Morgan Stanley suggests some contrarian views to invest in.
Here are five areas of key concern to investors where MS thinks the market may be missing the full picture.
1. Airlines Are Gaining Altitude
Even though investors are worried that carriers will not be able to keep up, adding too many seats and routes as consumers and businesses pull back on domestic and international travel, the global brokerage house thinks leisure and corporate travel will remain robust.
“Investors are worried that airlines will add meaningful capacity growth in 2024. However, our research shows that airlines are actually trying to pare back growth expectations, which should bode well for revenues from ticket prices. Meanwhile, in Europe, investors are also worried about soft demand and the effects of capacity constraints,” stated the brokerage. However, Morgan Stanley analysts expect room for another solid year of revenue growth for travel on the continent, despite potential weakness in long-haul transportation, where additional flights could strain pricing. Overall, these trends could favor low-cost carriers but pose a risk to flagship airlines, it added.
2. Decarbonisation
Markets are skeptical about the growth of sustainable investing, attributing it partly to slow progress in transitioning to renewable energy. High prices, driven by producers safeguarding profits amid elevated interest rates, may dampen customer demand in 2024. Morgan Stanley Research, however, believes that the impact of high rates is factored into renewable energy prices, offering better economics than alternatives like natural gas. The expectation of lower rates in the second half of the year could free up budgets for companies to invest in expansion. Morgan Stanley favors high-quality renewable energy developers, seeing potential in their undervalued stocks, while cautioning that smaller players might face challenges.
3. Tight Copper Is the New Normal
After recent upheavals in the global copper supply chain, disruptions appeared to ease last year. Many investors anticipate a return to normalcy, projecting up to 10 percent growth in pre-disruption production, driven by the delayed opening of a large Chilean mine and increased production in Peru and the Democratic Republic of Congo. This optimistic outlook suggests a potential surplus in copper for 2024.
However, Morgan Stanley Research predicts a sustained era of disruption. They anticipate a deficit of 340 kilotonnes in the current year, impacting prices by the second quarter, with London prices reaching a bullish target of $9,000/ton, approximately 8 percent higher than in 2023. Warning signs include a mine closure in Panama and substantial guidance downgrades from key producers. Given futures prices for the commodity surpassing spot prices, investors may explore equity opportunities, particularly focusing on miners with strong prospects for volume growth and operational enhancement.
4. India’s Run Continues
India is positioned for remarkable growth over the next decade, propelled by three major trends: global offshoring, digitalisation, and energy transition. As global supply chains reshape in a rewired economy, India is becoming an appealing option for electronics manufacturing. Despite this potential, investors remain doubtful about India outperforming China for the fourth consecutive year.
Contrary to investor skepticism, Morgan Stanley Research is optimistic about India’s growth prospects, projecting GDP growth exceeding 12 percent in 2024, more than double that of China. This positive outlook positions companies in India favorably for delivering earnings growth. Ridham Desai, Morgan Stanley’s Chief Equity Strategist for India, challenges the market perception that Indian equities will plateau in 2024, asserting that a profit cycle is only halfway through, offering a potential 20% compounding earnings growth over the next four to five years. Factors supporting this optimistic trend include the initiation of a new capital investment cycle, a robust banking system, lower corporate tax rates, and improved balance in trade and consumption.
5. Obesity Drugs Could Drive Behavioral Shifts
Obesity drugs have surged in popularity globally over the past two years, being utilised for weight management and addressing related health issues. Investors acknowledge the potential challenge to the food industry due to shifting consumer behavior but question the actual impact of obesity drugs. Morgan Stanley Research maintains its expectation that these drugs will significantly affect various food-related sectors. They anticipate decreased demand for unhealthy products like confections, baked goods, sweet and salty snacks, alcohol, and soft drinks as consumers opt for more nutritious choices. It noted the potential shift in demand but highlighted opportunities for companies offering healthy options, weight-management, and energy-boosting products as the behavioral effects of obesity drugs unfold.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.
