House prices will rise, Apple will fall – HAMISH MCRAE’S 2024 predictions

What a roller-coaster year it has been for financial markets. US equities near an all-time high, despite all the glum predictions, and with Apple back close to $3 trillion in value.

A wild ride on the bond markets, with the ten-year gilt yield – that crucial indicator of the cost of Government borrowing – starting at 3.7 per cent, dipping below 3 per cent in February, shooting up to 4.7 per cent in August and October – and now back at 3.5 per cent. Shares in London failing to follow New York, despite the FTSE 100 index breaching 8,000 in February, ending the year up 2 per cent.

The pound managing a decent rally, starting at $1.21, over $1.30 in July and encouraging me to expect it to push on to $1.40 – then proving me quite wrong by slithering back to $1.21 again before its modest recovery now to $1.27.

And Bitcoin, if you go for that sort of thing, climbing from $16,700 to $42,600, showing once again that you can make big money by investing in something with zero intrinsic value. Oh dear.

So what’s to come? Well, I think reason and value are still good guides for long-term investors. Of course you have to pay attention to the fashion of the day, and as an example of that any wise investor should have some stake in Apple, Microsoft and the other Magnificent Seven of big-tech America.

Reset: For investors abroad, the election will make them notice the better economic performance, and think maybe they have got the UK wrong

The US accounts for about 60 per cent of global equities so it would be irrational not to be there, even if they offer less value than the UK or the rest of Europe, as measured by price/earning ratios – in other words how much you pay for shares in a company against the profit it generates.

The S&P 500 p/e ratio is about 25, the Footsie just above 11 – so double the value – and while US economic growth will continue to be faster than that of the UK, that cannot explain the divergence. In any case three-quarters of the earnings of the top 100 UK-listed companies are generated abroad.

A year ago I expected the gap in this rating to narrow, but it widened. I still expect it to narrow in the coming year and that UK equities will do better than US ones, so let’s see if I am wrong again.

The reason I expected sterling to recover more against the dollar is that at current levels it is below its purchasing power parity of $1.40 to $1.50 (the Organisation for Economic Co-operation and Development puts it at $1.44).

But for a re-rating both for equities and for sterling there has to be a wider re-rating for the UK.

That will come, and my instinct is the switch will be at some stage this coming year – hence the idea I floated last week of 2024 being a year of two halves, the second far more positive than the first.

What might drive that shift of confidence? There are two broad answers to that. One is that the UK economy will continue to perform better than expected, a point made by Alex Brummer on the opposite page. Frankly, the continuing negative assessment of the UK by most economists has become embarrassingly wrong.

Interesting that just last week there were two more positive outlooks, one from the Centre for Economics and Business Research, which focused on solid long-term growth prospects, another, as noted opposite, from the accountancy group PwC.

The other answer is that the General Election will trigger a reset, whoever forms the next government. That is not to make a judgment about the politics. It is simply to point out that for investors abroad, who own more than half of UK shares, the election will make them notice the better economic performance, and think maybe they have got the UK wrong.

There are many things that can go wrong in the coming year, as the horrible conflicts in Ukraine and Gaza show us. There is a real concern that, while inflation will fall sharply everywhere, that decline won’t stick, and we will be left with it bubbling away at 3 or 4 per cent, not 2 per cent. There are concerns about recession, especially on the Continent. But the view from London is a bit brighter.

So let’s finish with a bit of neck-sticking-out, with half a dozen predictions. For the Footsie at the end of 2024: 8,500. For sterling: $1.40. For the ten-year gilt yield: 3.5 per cent (so no change on the year). For the market cap of Apple: $2.75 trillion (down from now). For house prices: up 5 per cent. For bitcoin: $16,700 – so back to where it was at the start of this year.

As you might have guessed, I have reasonable confidence in the first four, a lot of confidence in the fifth one… and zero confidence in number six.

This post first appeared on Dailymail.co.uk