Nutmeg investor update: February 2024

US equities powered to an all-time high in January. What was behind this and how did other markets fare?  

The S&P 500, the core benchmark for US equities, ended the month returning +1.7% on the back of a continuation of better-than-expected US economic data. 

The potential for the US economy to maintain a stronger economic footing than many of its developed market peers in 2024 is a key part of its attraction to us at Nutmeg.

US GDP data released in January for the final three months of 2023 showed the economy was more resilient than expected. 

US growth for this quarter registered +3.3% on an annualised basis, +1.3% higher than market expectations. And importantly, both consumer spending and labour markets remained in good health, which was reflected in the IMF’s January growth upgrade for the US economy in 2024.  

Elsewhere, Japanese equity markets led returns in developed markets (up +8.5% in local currency), while UK equities lagged behind global counterparts – the FTSE 100 returning -1.3% as key materials and financial sector stocks underperformed.

In Europe, despite a more challenging economic picture, the broader stock market delivered gains of +2.2%, driven in part by strong performance from stock market darlings: semi-conductor supplier, ASML, and Danish pharmaceutical firm Novo Nordisk. 

February sees Lunar New Year and the Year of Dragon. What is Nutmeg’s current view on China? 

From a macro perspective, it is challenging to have a positive view on China at the moment. The real estate sector, which was for years a driver of growth for the country, continues to experience a significant reversal.

Fragility in this sector continues to feed through into wider economic momentum. Evergrande, which was up until recently one of the largest property developers in the country, was placed into liquidation in January – a sign of challenges faced by those who previously benefitted from China’s property boom.

But China’s woes, unfortunately, extend far further than just the real estate sector. Over the past five years, investors have faced a steady stream of headwinds and risks to Chinese growth.

Alongside the decline of the real estate sector, there has been consolidation of power of a president who has reasserted Communist Party power in the economy; increasingly fractious relationships with its largest trading partners; economically damaging extended Covid policies; and a regulatory crackdown on leading technology companies. These issues have combined to undermine the confidence of global investors.

Political risk in particular has become elevated, with authorities’ regular interventions seen by many as motivated more by political objectives rather than rational (at least to western investors) economic outcomes.

China’s recovery in 2024 partially depends on whether the authorities decide to stimulate the economy, and to what extent this happens. Stimulus has been hotly anticipated, but recent announcements have seen only minor tweaks with minimal impacts for the broader economy.

Given the negative outlook on China, how is Nutmeg currently positioned? 

Chinese equities form part of our emerging markets exposure, but within emerging markets China’s relative share is much lower today than it has been at any time in the past five years.

At their peak in 2020, Chinese markets accounted for over 40% of emerging market stocks by weight. But today, as an illustration of how China’s appeal has cooled for investors in the post Covid period, that share has fallen to just 25%.

Away from domestic growth challenges, Chinese growth has also been significantly impacted by the lull in global manufacturing and goods demand over the past 18 months.

China remains one of the worlds largest economies and a major participant in global manufacturing and trade, but world trade volumes continue to be depressed in the aftermath of the goods boom that was witnessed during the Covid period.

Manufacturing, which is approximately a third of China’s GDP and highly scrutinised by foreign economists, has shown early signs of a rebound. However, for this to continue there will be heavy reliance upon the strength of western consumers and their governments, with whom relations, especially the US, have been challenging.

But with US growth and western consumption remaining stronger than expected, and both goods demand and investment cycles showing tentative signs of normalisation, we believe there is room for improvement in the trade picture though 2024. That view is matched by the IMF, which expects global trade to grow 3.3% in 2024.

While this is by no means runaway growth, and is below historical averages, a return to positive global trade and the continued strength of economies such as India means there is room for some optimism when it comes to emerging market performance through 2024.

The Nutmeg investor update is also available as a podcast. Listen to this month's update below. 

About this update: This update was recorded on 6th February 2024. All figures, unless otherwise stated, relate to the month of January 2024. 

Risk warning

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past performance and forecasts are not reliable indicators of future performance.