Surprises in 2024: Lessons from Politics and Markets That Investors Can’t Ignore
This year has been nothing short of a rollercoaster ride for investors, with unexpected twists and turns that left many scratching their heads. From shocking political outcomes to surprising market movements, 2024 has served as a wake-up call for those who thought they could predict the future. Angelina Lai, the chief investment officer of St. James’s Place Asia and Middle East, shares her insights on the top three surprises of the year and the valuable lessons they impart.
The Trump Card: A Political Upset
First on the list is the stunning victory of Donald Trump in the U.S. elections. Contrary to widespread expectations of a different outcome, Trump and the Republican Party pulled off a decisive win, securing a clean sweep that gave him a strong mandate to push his policy agenda. As results rolled in, equity markets responded with a robust rally that lasted for weeks.
Lai points out that many investors chose to play it safe, sitting on the sidelines or delaying investments in hopes of “waiting for certainty.” Unfortunately, this cautious approach meant missing out on the rally that followed the election. History shows that U.S. equities have delivered positive returns for long-term investors, regardless of political shifts, over the past 50 years. So, the lesson here? Don’t let short-term uncertainties dictate your investment decisions.
Bond Markets: The Unexpected Stalemate
Next up is the bond market, where investors anticipated a dramatic rally in U.S. Treasuries as soon as rate cuts began. However, that rally never materialized. Instead, Treasury yields remained stubbornly high due to persistent inflation, rising deficits, and moderate expectations about the pace of future rate cuts.
Some investors tried to capitalize on this prediction by purchasing long-dated U.S. Treasuries using bank loans as leverage, hoping to cash in on a sharp rally. But when that rally failed to happen, they found themselves in a tough spot, as borrowing costs on bank loans exceeded Treasury yields. Lai emphasizes that the absence of a treasury rally suggests that fixed interest investments could still be an attractive asset class in 2025.
China vs. India: A Market Showdown
Finally, the battle between China and India took an unexpected turn. Many investors deemed China un-investable, expecting a slow recovery, while India was seen as a rising star due to its favorable demographics and strong GDP growth. However, in a surprising twist, China experienced a sharp rally in September, while India faced challenges from allegations against the Adani Group and signs of a growth slowdown.
Lai warns against the common pitfall of “recency bias,” where investors exit underperforming markets and flock to popular themes that have recently done well. This behavior can lead to buying into overvalued markets driven by sentiment while selling undervalued ones just when they hold the greatest potential.
Key Takeaways for Investors
So, what can we learn from these surprises? According to Lai, the key is to remain disciplined and avoid overreacting to short-term events. Market resilience often triumphs over uncertainties, reinforcing the importance of sticking to a long-term investment strategy.
When it comes to fixed income, the lack of a treasury rally suggests that these investments may still hold value moving into 2025. And for those eyeing opportunities in less popular markets, it’s crucial to steer clear of behavioral traps like recency bias.
“Whether navigating political uncertainty, macroeconomic changes, or market volatility, the key is to remain disciplined, avoid overreaction, and focus on the fundamentals,” Lai advises.
In a year filled with surprises, the best strategy may just be to keep your eyes on the long game and not get swept away by the noise. After all, in the world of investing, patience and perspective can often lead to the most rewarding outcomes.
