Revealed! The 3 megatrends likely to impact the stock market this year

Karl 3rd Jan 2024 One Comment

Reading Time: 5 minutes

A recent report has highlighted three megatrends likely to impact the stock market this year. Conveniently, they all begin with the letter ‘D’: Decarbonisation, Demographics, and Deglobalisation.

So what does this all mean? And how can investors use this information to alter their investment approach?

Scroll down for all of the details, or click on a link to head straight to a specific section…

What did the Schroders report reveal?

Decarbonisation: Why green policies matter

Demographics: Our aging population and Gen Z

Deglobalisation: Why investors should take note

What did the Schroders report reveal?

According to the Schroders Crystal Ball 2024 Investment Outlook, decarbonisation, demographics and deglobalisation are forcing investors to “recalibrate their view of the world”.

The report highlights that while global interest rates and inflation may be stabilising, investors will need to work harder to earn a return on their investments due to the high returns available on cash right now.

The report also highlights the fact that the stock market is likely to be unpredictable this year, and investors should look to diversify their investments across a wide range of industries and regions in order to counter any negative impacts from decarbonisation policies, changes in demographics, plus the fact that the world is currently in a period of deglobalisation.

Alex Tedder, Head of Global and Thematic Equities at Schroders, explains: “In 2024 uncertainties will persist and equity markets are likely to remain volatile. As always, however, the old adage that ‘there is always a bull market somewhere’ may prove accurate. In fact, we think there are a number of areas that may prove highly profitable for global equity investors next year.”

Tedder continues: “For equity investors a change in mindset is needed. This involves more diversification across regions (including a return to unloved markets such as Japan and the UK), more focus on the implications of structural change, and renewed attention to valuation, quality, and risk.”

Decarbonisation: Why green policies matter

Now we’ve touched on the general takeaways of Schroders’ annual report – which you can read here – let’s take a closer look at the three megatrends highlighted by the asset management firm, starting with decarbonisation…

As we know, the terms ‘decarbonisation’ and ‘net zero’ have been at the forefront of Government policies over the past half-decade or so. Why? Because political parties around the world are becoming increasing aware of their obligations to address public concerns surrounding the environment (or at least they’re aware of the need to be seen to be interested)!

Whether you think there’s too much – or too little – attention given to green polices right now, there’s a strong possibility that companies operating in renewable energy, including those focusing on solar, wind, and hydroelectric power, will thrive in the coming years.

On a similar note, firms involved in electric vehicles, battery technology, and energy efficiency solutions, are all likely to see strong demand in the near future – even if this is mainly because of Government subsidies.

Of course, with every narrative, there’s another side to the coin. And in this case, the other side of the coin is a picture of the fossil fuel industry….

So, given the increasing appetite towards renewables, is it time for investors to turn away from firms relying on carbon-intensive practices, like oil and gas? Possibly.

However, while ‘dirty’ sectors are set to face stricter regulations and a heightened focus on reducing carbon footprints in 2024 and beyond, it’s also fair to say that the industry could be undervalued thanks to the the consistent media narrative presenting the idea that fossil fuels are ‘bad’ – full stop.

Like it or not, fossil fuels are going to be with us for many years to come. Right now, 80% (!) of global energy demand STILL comes from coal, oil and gas.

Of course, while investors certainly shouldn’t disregard the inevitable move towards renewable sectors, it is worth being aware of the fact that fossil fuels are likely to continue making up a large part of investor portfolios in 2024. On the same page, however, it’s also likely that fossil fuel investors will come across increasing market volatility stemming from possible regulatory changes associated with the drive towards decarbonisation.

Demographics: Our aging population & Gen Z

Changing demographics is expected to have a notable impact on the stock market this year. It can be argued that one key area of opportunity lies in industries catering to an aging population.

Firms involved in healthcare, pharmaceuticals, and senior living facilities, for example, may experience increased demand this year as the demographic makeup of the UK continues to shift towards older age groups. And this change will only keep on accelerating of course, as the number of people aged 75 and over is expected to double from 5 million to nearly 10 million by 2039 according to the ONS.

Speaking of changing demographics, it’s also worth investors taking into account the fact that more of Generation Z (those born between 1997-2013) will enter adulthood this year. With research suggesting Gen Z’ers are the most environmentally-conscious of all generations, then it’s worth understanding the knock-on impact this could have for consumer preferences going forward.

For example, industries like fast fashion and certain tech trends could see shifts as the market adapts to changing consumer preferences influenced by Gen Z in the near future.

More generally, as the wider workforce undergoes demographic changes, companies focused on remote work technologies and flexible work solutions may experience growth this year. While ‘work from home’ policies took a bit of a hammering in the media in 2023, let’s face it, the practise isn’t going anywhere. So, with this in mind, it’s easy to see how the remote working trend could continue impacting sectors like commercial real estate, while simultaneously presenting new opportunities for firms involved in tech and digital collaboration platforms.

Deglobalisation: Why investors should take note

There’s no doubt that deglobalisation is here to stay – at least in the short-term – as more and more countries are becoming increasingly aware of the benefits of being self-reliant. Some might say that it only took a global pandemic and a war in Eastern Europe for nations to appreciate the risks of being overly reliant on imports!

Given we’re currently in a trend towards deglobalisation, companies with a focus on domestic markets could very easily benefit this year. It’s also possible that sectors tied to local production and supply chains, such as certain manufacturing industries, could experience something of a resurgence over the next 12 months or so.

In contrast, multinational corporations heavily reliant on global supply chains may face challenges in 2024, especially if global trade tensions get any worse.

As we know, the situation in Taiwan remains very fragile and the country/region remains the centre of the world’s semiconductor industry. It simply doesn’t bear thinking about the economic consequences of a war between China and Taiwan.

Of course, nobody can accurately predict the true impact of deglobalisation over the next 12 months. However, what investors can do is ensure they’re at least keeping themselves informed of geopolitical developments. So if you aren’t a regular news-watcher, perhaps you should make it your New Year’s resolution?

Do you want to learn more about investing in 2024? To keep on top of the latest developments in the wider investing sphere sign up to the fortnightly MoneyMagpie Investing Newsletter. It’s free and you can unsubscribe at any time.

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