Global power shifts, with India being an undisputed beneficiary of the changing power dynamics, is expected to be one among the five major investment themes that are expected to play out in 2024, according to researchers at MSCI.

Macroeconomics with interest rates as the overriding element will obviously dominate short-term concerns but other strategic shifts such as an acceleration in the growth of private credit, ongoing global power shifts, and the widespread deployment of artificial intelligence (AI) will determine the investments in the new year, said MSCI’s Chief Research Officer Ashley Lester in a blog post ‘Investment Trends in Focus: Five Key Themes for 2024.’

Global Power Shifts

Both 2022 and 2023 were dominated by geopolitical tensions, first through the outbreak of a war between Russia and Ukraine and more recently the tragic events in the Middle East that have again polarised world economies along religious and political lines.

“However, the ongoing tensions between China and the U.S. may have greater significance for global investment flows, as they call into question the globalization paradigm that has dominated the past thirty years,” wrote Lester.

Corporations, that have relied on China so far for global supply chain, are re-assessing and diversifying, as India -- among other countries such as Mexico, Thailand, Malaysia, and Vietnam -- is proving to be a suitable alternative in the ‘China-plus-one’ or ‘China-plus-many’ strategies.

“Holders of Indian equities, for example, have been the early beneficiaries of this shift. India’s weight in the broader MSCI EM IMI benchmark has nearly doubled throughout the COVID-19 era to a record high...”, said the blog.

Lester pointed out that a reset of expectations within emerging economies, aided by expanded market depth, has helped fuel India’s rise.

However, “whether this pattern continues amid rich valuations and looming Indian elections will be top of mind for emerging-market investors in 2024,”  he cautioned.

Other themes

Unprecedented soaring inflation and the consequent rise in interest rates gripped major economies over the last two years.

The US Fed Reserve has signalled its readiness to cut rates in 2024 and while the European Central Bank and the Bank of England have not been so explicit, there is an expectation that they will follow suit.

Private credit, which is based on floating rates, benefited in the higher interest rate environment and this is set to accelerate this year.

Lester observed that rising rates posed challenges for private credit “as many portfolio companies are highly levered (relatively) and face increasing debt-service costs.” Buyout funds have reduced their distributions to investors and their capital calls.

All this has the potential to benefit private credit, with the caution “whether higher rates will ultimately pose repayment difficulties for borrowers remains to be seen.”

AI has exploded on the scene and “one of the biggest stories of 2024 will be the continued evolution of AI and the shift from excitement to execution, as companies across sectors jockey for position as “first movers” and look for ways to boost productivity across every part of their business,” said Lester.

In the US, AI-focused firms have sharply outpaced the broader equity markets and while the spectre of a 1999-like tech bubble looms, some lessons may have been learnt from the past.

Climate change is a shadow behind all the other themes “with investors increasingly turning their attention towards the investment necessary to fund the transition.” This will be a major theme not only in 2024 but for several years in the future as countries have aligned themselves to the net-zero 2050 pathway.

“Investors are increasingly prioritizing financing the transition, rather than focusing only on portfolio level decarbonization,” said MSCI Research.