This year delivered many surprising and unexpected events that shocked investors and onlookers. St. James’s Place shares its top three choices across politics and markets.
In 2024, there were a number of unexpected outcomes across the field of politics and investing. According to Angelina Lai, chief investment officer of St. James’s Place Asia and Middle East, this year was a wake-up call for many investors.
«While it’s tempting to react to short-term events or market sentiment, or take a directional bet based on popular ‘consensus', the importance of staying focused on long-term, well-considered strategies cannot be overstated,» she said in a note.
US Election
St. James’s Place featured three of the top surprise outcomes in 2024 with the most notable being the US election and the victory of Donald Trump.
«Contrary to expectations, Trump and the Republican Party achieved a decisive victory, securing a clean sweep. This provided Trump with a strong mandate to implement his policy agenda. The equity markets responded positively, with a robust rally that began as results emerged and continued for weeks,» Lai said.
«Many investors chose to sit on the sidelines, selling out of markets or delaying investments to 'wait for certainty’. Unfortunately, this approach meant missing the rally that followed the election outcome. In the case of US elections, history demonstrates that US equities have delivered positive returns for long-term investors, regardless of political shifts or party control, over the past 50 years.»
Bond Markets
The second most unexpected outcome was found in fixed income markets where investors initially expected US Treasuries to rally dramatically as soon as rate cuts began.
«The anticipated rally did not materialize. Treasury yields remained high (relative to recent times) amidst persistent inflation, rising deficits, and moderate expectations regarding the speed and depth of future rate cuts,» Lai explained.
«Some investors attempted to capitalize on this prediction as a short-term gamble by purchasing long-dated US treasuries using bank loans as leverage, with the plan to liquidate after the expected sharp treasury rally. Unfortunately, this approach backfired as the rally failed to occur. Meanwhile, borrowing costs on bank loans surpassed treasury yields, compounding the challenge for these investors.»
China Versus India
Finally, China was deemed un-investable with expectations of slow potential for market recovery at best, compared to the prospects of India, driven by favorable demographics and strong GDP growth. However, China delivered a sharp rally in September while India suffered headwinds from the Adani allegations and signs of a growth slowdown.
«One of the common pitfalls of investing, known as 'recency bias', is the tendency to exit markets that have underperformed recently, while favoring popular themes and regions that have performed well and garnered positive media attention,» Lai noted. «This behavior often leads to buying into overvalued markets driven by sentiment and selling out of undervalued ones just when they may hold the greatest potential.»
Lessons Learned
According to Lai, there are lessons to be learned from the various surprises in 2024.
On politics, she underlined that market resilience often triumphs over short-term uncertainties, reinforcing the importance of staying the course and maintaining confidence in a long-term investment strategy. On fixed income, she said that the absence or delay of a treasury rally suggests that fixed interest investments remain a relatively attractive asset class in 2025. And on China, she advises against behavioral investing traps like recency bias and to seek opportunities, including in less popular markets.
«Whether navigating political uncertainty, macroeconomic changes, or market volatility, the key is to remain disciplined, avoid overreaction, and focus on the fundamentals,» Lai added.
