Three investing winners that delivered the most alpha this year — digital assets, luxury goods and uranium — have a good chance to extend gains into 2024.
Here’s my assessment of the strengths, weaknesses, opportunities and threats in those categories.
Luxury goods and international markets
- Despite predictions of a recession in 2023, the U.S. economy has proven resilient and appears poised for continued strength in 2024. During the third quarter of the current year, the GDP experienced an impressive, annualized growth rate of nearly 5%. This remarkable expansion can be attributed to vigorous consumer spending and a robust employment landscape. Additionally, yields have likely increased while inflation is on a downward trajectory. In a surprising move, the Federal Reserve announced its intent to implement rate cuts next year, further boosting economic prospects.
- In 2023, the most expensive luxury vehicle sold at auction was a 1962 Ferrari 250 GTO, with a price tag of $51.7 million. This was also the most expensive car ever sold at auction from the Italian manufacturer. The record-breaking sale took place at Sotheby’s in New York as the car was offered publicly for the first time in 38 years.
- Royal Caribbean and Carnival Corporation, two cruise line companies, emerged as top performers within the S&P Global Luxury Index in 2023, posting impressive gains of 161.97% and 130.02%, respectively. They were among the hardest-hit stocks during the COVID-19 pandemic, and as the pandemic ended allowing people to travel again, they recorded massive gains.
- Stocks trading on the Hong Kong Stock Exchange (measured by the HSCI Index) declined 10.69% this year, while equities trading on the mainland (measured by the SHCOMP Index) lost 3.85%. China’s economy is encountering difficulties in achieving its targeted growth rate, facing multifaceted challenges throughout the year, including escalating geopolitical tensions, mounting debt issues, and a slower post-pandemic recovery.
- In addition to China, the Eurozone underperformed. The region is expected to see 0.8% growth in 2023, down from the 1.1% that had been previously predicted. It is expected to post growth of 1.3% in 2024, down from 1.6% forecast. The 20-member bloc entered a recession in the first quarter of the year. The economic slowdown is a result of weakened demand due to high inflation rates, the European Commission said. Germany, the largest economy in Europe, has been hit by higher energy prices and slowing demand in China.
- Faraday Future Intelligent Electric Inc., a California-based global shared intelligent electric mobility ecosystem company, was the worst performing S&P Global Luxury stock this year, losing 99.01% in 2023. At the beginning of the year, the company finally unveiled its long-anticipated luxury electric car, the FF 91 Futurist. The FF 91 2.0 Futurist Alliance, a high-end SUV, had a starting price of $309,000, while other versions of the FF 91 began at $249,000. To cope with the high production costs and slow deliveries, especially given the hefty price tags, the company has been actively seeking additional funding.
- Lower-than-anticipated inflation figures in both the United States and the Eurozone could indicate that central banks might conclude their tightening measures. During its December gathering, the Federal Reserve caught many market watchers off guard by proposing multiple interest rate reductions in 2023. This could lead to a further decline in yields and an uptick in equity markets.
- The global luxury industry witnessed robust expansion in the preceding year, but it is showing signs of deceleration this year, with the possibility of reaching its lowest point in the first quarter of 2024. According to RBC Capital Markets, luxury sector sales are forecasted to reach their lowest point in the first quarter of 2024, followed by an improvement in the latter half of the year. On a sector-specific basis, RBC anticipates an average growth rate of 9% in its sporting goods segment and an average of 5% in the luxury sector.
- CLSA, one of Asia’s top brokers, predicts that the global luxury goods sector will grow 6.5% from 2022 to 2025, slightly surpassing the 5.5% growth over the past two decades. This will be driven by Chinese demand recovery on the back of reopening and outbound travel resumption. In 2019, the Chinese comprised one-third of the global personal luxury sales at $92 billion, and it will continue to rise, reaching EUR100 billion by 2025.
- Bain & Company, a consulting group in the luxury sector, said that the sector is experiencing normalization. Last year the sector was able to grow on average at 20%. This year the growth rate should be around 8-9%, much closer to the long-term average of 6%. The group expects the growth to slow down next year to 4-5%, below its long-term average. Bain & Company expects a slower first half of 2024 and a stronger end to the year.
- The conflict in Europe is approaching its second year, while tensions between Israel and Hamas have extended to Europe, causing disruptions for both locals and visitors alike. Local authorities in major European cities such as London, Paris, Madrid, and Rome have heightened security measures in response to clashes that erupted after Israel was started. Notably, in France, a key hub for numerous luxury companies, security concerns have led to the evacuation of prominent sites like the Louvre Museum, in addition to affecting several airports. Ongoing unrest and geopolitical tensions have the potential to adversely impact global consumer spending.
- China’s projected gross domestic product (GDP) growth for the upcoming year could decelerate to 4.6%, down from the 5.2% recorded in 2023. This potential slowdown may be attributed to persistent global geopolitical tensions and domestic obstacles within the property sector. Furthermore, China grapples with structural challenges stemming from an aging population, elevated youth unemployment rates, and mounting debt issues. Given its significance as a market for luxury goods, a decline in consumer spending within China could exert adverse effects on the high-end sector.
Energy and natural resources
- The best performing commodity for the year was uranium, rising 82.89%, as proxied by the Sprott Physical Uranium Trust. According to RBC, uranium prices moved higher in 2023 as activity picked up, with a pick-up in financial/company buying and utility interest. On the news front, Euratom released its Annual Supply report which highlighted a projected moderate increase in uranium requirements and decrease in inventories, while uranium requirements in the EU are generally covered by contracts through 2025. In addition, the French government and state-utility EDF agreed on a deal for nuclear power prices that should help support nuclear build-out plans while tempering price volatility for consumers.
- Iron ore was the second-best performing commodity followed by sugar and then coffee in 2023. Disruption to sugar-sourced crops has been plagued by weather and key producing countries most notably India, Thailand, China, and Pakistan. A lack of rainfall in Brazil may lead to stressed crops with lower yields while the Intercontinental Exchange (ICE) warehouse stocks remain near 24-year lows.
- Copper rebounded with other risk assets in 2023 after U.S. jobs data was seen as supporting the case for the Federal Reserve to start cutting interest rates next year. The metal climbed as the figures underscored a gradual cooling in the U.S. labor market. Copper was strong after the closure of a major mine in Panama highlighted future supply challenges for the red metal as the energy transition accelerates. Panama’s government said it will shut the Cobre mine owned by First Quantum Minerals, damping hopes that the company might be able to reach a new deal to keep it operating. The project, the subject of mass protests from environmentalists and labor unions, produces about 1.5% of the world’s supply of this industrial metal.
- The worst performing commodity for the year was lithium carbonate, dropping 81.95%, following its price gains of 87.21% in 2022 and 428.47% in 2021. According to JPMorgan, in 2024, the group is most constructive on energy, but unlike 2023, returns will be driven by oil (which has downside risk)—whereas U.S. natural gas prices are forecasted to decline 40% by year-end 2024. Natural gas was the second-worst performing commodity, falling 49.31%, for the year.
- Glencore Plc said it will produce almost 10% less nickel in 2024 than previously forecast, potentially supporting slumping prices of the key battery making ingredient. Nickel, used in both batteries and stainless steel, traded near a two-year low in 2023 after suffering a steady decline as a wave of new production from Indonesia overwhelms sputtering demand. Nickel was the third-worst performing commodity for the year, falling 44.80%
- According to Morgan Stanley, there were drought conditions in Argentina. As a result, cultivated acreage and yields will be worse than previous expectations in the country, the world’s third largest soy producer and fourth largest corn producer. Argentina’s production fell 18% for soy and down 19% for corn.
- Bank of America believes Big Oil’s redemption roadmap will keep unfolding for those finding the following three signposts: 1) Continued capex discipline (below average 7% growth in Big Oil budgets); 2) instead favoring shareholder distributions (the bank sees average CFFO payouts climb to 33% in 2024); 3) underestimated cash flow resilience from earnings per share support from above-average buybacks.
- Clean energy developers are expected to install a record amount of solar power in the U.S. in 2024 as the industry recovers from supply-chain and trade obstacles. The solar industry is projected to add 32 gigawatts of capacity in 2024, an amount equal to about 30 new nuclear reactors, according to a report by the Solar Energy Industries Association Inc. and Wood Mackenzie Ltd.
- Countries around the world are scrambling to secure shipments of the power plant and heating fuel from major exporters like Qatar and the U.S., but there is little new supply coming online before 2026. Meanwhile, Europe is racing to replace Russian pipeline gas with LNG, further exacerbating the global shortage of fuel. Roughly 30% of all LNG deliveries were via the spot market in 2023, according to the International Group of Liquefied Natural Gas Importers.
- The global lithium market is facing a supply crunch toward the end of this decade amid wider adoption of electric vehicles, with more than $51 billion in investments needed to meet future demand of rechargeable batteries, according to Benchmark Mineral Intelligence. “We need to move urgently here or we’re going to have massive problems meeting the demands of the auto industry,” Chief Operating Officer Andrew Miller told a seminar.
- Coal demand is likely to continue to decline. Electricity generated from U.S. solar and wind systems will surpass power produced by burning coal for the first time in 2024, driven by surging panel installations. Coal will produce about 599 billion kilowatt-hours in 2024, according to government data released Tuesday. That will be down from 669 billion kilowatt-hours in 2023 as utilities continue to shutter coal-burning power plants.
- According to UBS, in 2023, aluminum has faced headwinds from weak demand (accentuated by protracted destocking in Europe/U.S.), sustained increases in Chinese smelter production and cost curve deflation; but after sustained downward pressure in 2023, the LME price has stabilized in a $2,100-2,300 per ton range and could remain there in 2024.
Bitcoin and digital assets
- Bitcoin soared in 2023, climbing over 150% and proving to investors that it had the potential to recover following industry scandals such as Sam Bankman-Fried’s FTX collapse.
- As reported by CNBC, bitcoin’s rally in 2023 helped to drive some of the stock market’s biggest gains this year. In fact, shares of Coinbase, MicroStrategy, and the Grayscale bitcoin Trust (which are tied closely to the digital currency), all did substantially better than bitcoin.
- As 2023 comes to an end, the Ethereum blockchain is now secured by over 20% of the supply of ether (ETH) in the world, and 40% of that is managed by Lido, a staking derivatives protocol, according to Axios.
- One of the more bizarre crypto stories of the year, according to CoinTelegraph, includes copycat NFTs. In October, a United States district court judge ordered Ryder Ripps and Jeremy Cahen to pay $1.57 million in damages to Yuga Labs for copying the Bored Apes Yacht Club (BAYC) nonfungible tokens (NFTs).
- The U.S department of Justice settled with crypto exchange Binance, concluding a criminal investigation into allegations of money laundering and sanctions violations. The settlement involved $4.3 billion in penalties, marking one of the largest corporate settlements in U.S history, writes The Block.
- Sam Bankman-Fried, the former CEO of FTX, was convicted on all seven criminal counts on November 2, including wire fraud and conspiracy to defraud FTX customers. He now faces a maximum sentence of 115 years in prison, with Judge Lewis Kaplan scheduling sentencing for March 28, 2024, according to The Block.
- The United States District Court in the Southern District of New York granted a partial victory to Ripple Labs in the SEC case dating back to 2020. Judge Analisa Torres ruled that XRP is not a security when traded on digital asset exchanges but is a security when sold to institutional investors. Initially, the SEC fought to restrict Ripple’s token offering due to its alleged unregistered security status, according to CoinTelegraph.
- BlackRock’s spot bitcoin ETF was listed on the Depository Trust & Clearing Corporation, which suggests the potential for approval by the United States SEC. The SEC has until January 10, 2024, to decide on Blackrock’s application.
- Hong Kong facilitated crypto trading for retail investors but with some limitations. Only certain types of tokens, such as security tokens, are allowed and only on platforms that are licensed and regulated by the Securities and Futures Commission, according to Analytics Insight.
- U.S presidential candidate Ron DeSantis has reaffirmed his opposition to central bank digital currencies (CBDCs), pledging to ban them in the U.S. if he is elected. DeSantis declared, “On day one, I will nix central bank digital currencies. Done. Dead. Not happening in this country.” He previously signed a bill in Florida prohibiting federal CBDCs and foreign CBDCs, writes CoinTelegraph.
- Changpeng Zhao, commonly known as “CZ”, co-founder of Binance, agreed to step down as CEO as part of a plea deal with the DOJ. Zhao pleaded guilty to violations of the Bank Secrecy Act and will pay a $50 million fine and potentially face a prison sentence of up to 18 months, writes The Block.
- Su Zhu, co-founder of the defunct crypto hedge fund Three Arrows Capital, was arrested at Singapore’s Changi Airport in September for failing to comply with a liquidation investigation, according to The Block.