Geopolitical Regions
Today, we are sending you the BCA annual outlook for 2024. The report is an edited transcript of our recent conversation with Mr. X and his daughter, Ms. X, who are long-time BCA clients with whom we discuss the economic and financial market outlook for the next twelve months toward the end of each year.
A series of notable events took place over the Thanksgiving holiday but none of them force us to change our fundamental assessments. The conflict in the Middle East is likely to escalate rather than de-escalate, while the Taiwan Strait has at least a 50/50 chance of seeing tensions escalate next year.
Investors should not get their hopes up about the Biden-Xi summit. Wait to see if a new ruling party is elected in Taiwan before downgrading geopolitical risk in the Taiwan Strait. US-China strategic détente is possible but neither the geopolitics nor the macro backdrop warrant a risk-on position next year.
Amid a range of geopolitical narratives, what matters is that the US strategy of economic engagement with its rivals is failing, giving rise to a new strategy of containment that will reinforce the secular rise in geopolitical risk. Our market-based quantitative indicators of geopolitical risk are set to rise in the coming year.
The Netherlands has a healthier and more stable economy and demography than its European peers. Investors should stay overweight developed European equities, including Dutch equities, relative to emerging European equities.
Investors should reduce risk, increase allocation to safe havens, and brace for oil price volatility and supply disruptions stemming from the Middle East over the next zero-to-12 months.
More equity volatility is coming in the short run. Trump’s nomination looks to be smooth, which marginally reduces the incumbent party advantage and increases policy uncertainty.
Investors underestimate the likelihood of the war in Israel spilling outside of Gaza, and engulfing wider swaths of the Middle East, endangering energy supplies. Stay overweight Energy and Aerospace & Defense.