2024 presents itself to the world of finance and in particular to the stock markets as a year of challenges and opportunities, which pushes investors to move with caution, navigating by sight, in the treacherous waters of a year full of unknowns.
With these premises, understanding which actions to avoid and which rules to follow in order to invest safely becomes something fundamental. And for this reason, numerous consultancy companies have published rich reports with projections and detailed analyzes of the dynamics that could define 2024.
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The 3 risks to absolutely avoid
As anticipated, 2024 presents itself as a restless year full of challenges, opportunities and pitfalls. It is a complex terrain full of unexplored paths inaugurated in 2023 and on this terrain investors must carefully calibrate their steps and their moves in order not to unnerve the markets.
With this in mind, Vontobel Asset Management has produced a rich analysis that indicates the three main risks to monitor in 2024. These are the slowdown of the economy, the possibility of a new slowdown in consumption and the geopolitical risks linked to international conflicts and tensions.
Let’s start from the slowdown of the economy. This risk, inherited from 2023, the year in which a recession was feared which did not occur but which could still occur due to the defined late effects of monetary policy actions on an economy and inflation that, although declining, still appears very volatile and could trigger a slowdown in the global economy in 2024.
Monitoring the decisions of monetary institutions
In this sense, the actions and decisions must be monitored. Especially of the large monetary institutions, the ECB and the FED first and foremost. Which, as in the second half of 2022, throughout 2023 and presumably in the first half of 2024, will have to make accounts with inflation, and evaluate their moves regarding interest rates.
And precisely on the subject of interest rates, the hypotheses of a first U-turn continue, at least by the ECB starting from the second half of the year.
The slowdown in the economy could.according to Vontobel, being a late effect of the contraction in consumption, already recorded in 2023 and which could continue into 2024. This contraction, according to experts, is one of the long-term effects of high inflation which, in the last 2 years, has progressively deteriorated private savings. But not only that. According to experts, in fact, in addition to the decrease in savings, a significant increase in the deficit could also impact the slowdown of the economy.
The third and final factor to monitor are the geopolitical structures and balances, which could have a negative impact on the global economy. This impact was expected as early as 2023, but has not occurred, and could surface in the coming months.
The stocks to avoid in 2024
Providing a list of stocks to avoid in 2024, as we have seen, is not possible due to the countless uncertainties and variables acting on global economic markets, however, it is possible to identify some sectors and types of stocks, which could represent a huge risk and result in a significant loss of capital.
High risk stocks
High risk stocks are generally the subject of debate since the high risk can, in some cases, translate into an incredible profit opportunity. However, we must distinguish between two types of risk. There is in fact a positive risk, which consists in betting on stocks with growth potential. And negative risk, represented by declining stocks.
Shares with a low ROE and sectors in decline
In this sense, weak shares with a low ROE (Return On Equity) and high debt must be absolutely avoided. Furthermore, shares of companies with high earnings volatility must be avoided.
Other stocks to avoid are those linked to sectors that are in decline or that are facing structural or technological challenges.
Stocks with off-the-scale valuations and those with poor financial stability
The third type of stocks to avoid are stocks with off-the-scale valuations. I.e. stocks with extremely high valuations compared to their own earnings or industry earnings, as these may be bubbles ready to explode.
The fourth type of shares to avoid are those with poor financial stability. As anticipated, shares of highly indebted companies, whose revenues are not sufficient to cover their operating expenses, can be vulnerable and extremely risky.
Before moving on to the fifth point, we point out that high debts are not necessarily indicative of financial instability. In fact there are companies with billions of dollars in debt, which however are considered stable. Partly because they have a capital reserve equal to or greater than their own debt and partly because your income is significantly higher than your debt, so that debt could be paid off at any time.
Shares of companies linked to scandals
The fifth type of shares to avoid are the shares of companies linked to scandals or legal problems, since these shares are strongly influenced by public opinion and the probability that their value could collapse is very high.
In this sense, an extremely current example concerns Boeing shares, which, following an accident which occurred on January 5, 2024, saw a loss in value of approximately 10% in a single weekend. And which, according to projections, could lose further ground in the coming months.
Read also: The most common investing mistakes to avoid