As 2023 comes to an end, what should we invest in for 2024? Bank of America (BofA) strategists have released a list of assets that are expected to perform well in 2024. It includes five major investment themes, with large technology companies being one of them. However, BofA does not recommend buying tech stocks next year but instead favors investing in their corporate bonds.
1.Investment-grade technology company bonds
According to MarketWatch, the team led by BofA strategist Harnett points out that investing in investment-grade corporate bonds issued by technology companies is promising for 2024. The selling point lies not in their earnings outlook but rather in these big enterprises’ strong balance sheets. At this time towards the end of 2023, the corporate bonds issued by tech giants have already attracted capital inflows, especially from the “Big Seven” – Apple, Amazon, Meta (Facebook’s parent company), Tesla, Nvidia, Alphabet (Google’s parent company), and Microsoft. These seven giants were the main driving force behind the surge in the US stock market in 2023; however, BofA holds a reserved attitude towards their stock price trends for 2024.
2.Biotech and renewable energy stocks
In contrast to that view on tech stocks mentioned earlier, Harnett’s team points out that one major hot theme for 2024 is so-called “long-depressed tech stocks” surpassing the soaring prices of the “crowded monopolistic tech giants.” As interest rates come down and inevitably impact earnings per share figures next year, biotech and renewable energy stocks are expected to outperform these crowded monopolistic tech giants.
For example，SPDR S&P Biotech ETF (code: XBI)，a long-term asset，has experienced significant declines this year due to its conflict with rising interest rates。Therefore，as Fed is expected to cut interest rates next year，the valuation of these stocks theoretically is expected to improve.
3.”Rough diamonds” concept assets
BofA also suggests buying some “rough diamonds,” referring to undervalued sectors/categories such as banks, utilities, real estate investment trusts (REITs), and top-tier stocks in the UK and Chinese markets that have fallen out of favor but offer high leverage ratios.
Regarding this point, Gross, co-founder of PIMCO, recently posted on social media platform X (formerly known as Twitter) saying that mortgage REITs with deep declines are expected to turn around next year and provide substantial returns (see the article “Earn both price spreads and dividends! Bond king Gross names these two potential stocks for 2024”).
Looking beyond the US market, the FTSE 100 index in the UK has only seen a slight increase of 0.6% this year; there are many deeply declining bank stocks, utility companies, and oil company stocks available at low prices. BP’s performance this year has been similar to the overall market trend due to a 5% decline in oil prices since the beginning of the year. The stock market performance in mainland China has also been rocky in 2023 due to a lackluster post-pandemic economic recovery.
4.Diversified bond portfolio
BofA also recommends more complex bond investments such as mixing US Treasury bonds with investment-grade bonds, high-yield bonds, emerging market bonds or sovereign debt denominated in foreign currencies.
5.Japanese Yen
The BofA strategists team is optimistic about the future of the Japanese yen and expects that Bank of Japan will initiate a long-awaited interest rate hike cycle next year which will attract massive capital inflows into Japan。The Japanese stock market has already surged by 28% this year，making it one of the top performers among global stock markets for 2023 according to the Nikkei 225 stock price index.