Finsphere

Dear Clients and Stakeholders,

As we close the book on 2024, it is crucial to take a moment to reflect on the events that have shaped global markets and economies over the past year. The year was defined by an array of economic challenges, geopolitical uncertainties, and technological advancements that will continue to reverberate into 2025. The macroeconomic forces that guided 2024 were anything but predictable, with volatility in energy markets, persistent inflationary pressures, and unprecedented advancements in artificial intelligence (AI) altering industries at an accelerating pace.

Geopolitical Scenario and Global Economic Overview

• 2024 proved to be a year where geopolitical tensions and shifting global power dynamics took center stage. We witnessed national elections in over 60 countries, influencing policy directions and international relations for years to come. The ongoing conflict in Ukraine and the volatile situation in the Middle East—particularly between Israel and Hamas—remained key focal points of instability, while concerns surrounding Taiwan’s relationship with China continued to weigh on market sentiment. In a world increasingly moving away from the traditional superpower bipolarity, new centers of power and influence are emerging, signaling an evolving order of global geopolitics.
• The global economy faced persistent inflationary pressures, with many regions struggling to bring prices under control. Central banks in major economies, including the United States and the Eurozone, however valued growth over inflationary pressure while recalibrating their monetary policy to rate cuts. The US Federal Reserve, for instance, implemented a 100-basis point rate cut in 2024 but took a cautious stance towards further reductions, reflecting the ongoing inflationary challenges. In India, while inflation remained stubbornly high—driven by surging food and energy costs—the Reserve Bank of India kept its policy rates steady throughout the year, opting instead to reduce the Cash Reserve Ratio (CRR) to manage liquidity in the banking system.
• The International Monetary Fund (IMF) projected global growth to stabilize at 3.2% for 2024 and 2025, signaling that, despite the challenges, a growth trajectory is on course. However, this global economic growth was far from uniform, with significant divergence in performance across regions.

Global Equity Markets Performance

• The performance of global equity markets in 2024 was a reflection of both resilience and divergence. The US markets, particularly driven by the strength of mega-cap tech stocks, demonstrated robust returns. The S&P 500 surged by 24%, with the NASDAQ leading the charge with a stellar gain of 30.8%. The Dow Jones Industrial Average posted a more modest increase of 12.8%, but it remains noteworthy that all major US indices ended the year in the green.
• In contrast, European equity markets struggled under the weight of weak economic momentum and political turbulence. The Euro Stoxx 600 recorded a gain of just 6.1%, and France's CAC 40 was down by 2% for the year. The manufacturing sector, already reeling from high energy costs and stifling regulation, faced further pressures from waning export demand. Germany’s DAX, however, was an outlier, delivering a healthy gain of 18.7%, reflecting some sectoral strength in industrials and technology.
• Across the Channel, the UK posted a modest recovery, with the FTSE 100 advancing by 5.8%. This cyclical rebound was tempered by a less-than-optimistic autumn budget, which introduced higher taxes and subdued business sentiment.
• In Asia, Japan’s Nikkei 225 stood out as one of the top-performing indices globally, gaining 19.8% in 2024. The Japanese market benefitted from a combination of renewed corporate reforms and optimism regarding an end to the country’s deflationary cycle. Meanwhile, China’s economic performance remained weak for much of the year, with the Shanghai Composite showing a relatively modest gain of 13.1%. However, a mid-year rally, bolstered by more coherent policy announcements, provided a significant boost to Chinese equities, signaling a more optimistic outlook for 2025.
• Indian equities delivered a return of 8.8% in 2024. The Nifty 50, though slightly underperforming compared to some global markets, demonstrated the underlying strength of India's economic trajectory, aided by reforms and structural improvements in the business environment.

Commodities and Currency Dynamics

• The year also saw commodities experience a mixed performance. Oil prices, though volatile, ended the year on a positive note, with Brent crude averaging $85 per barrel, slightly above 2023 levels. Gold, however, emerged as one of the standout performers, posting an impressive 23%+ return due to global uncertainty and concerns over US fiscal policy. Commodities more broadly, constrained by weak demand in China, only delivered a 5.4% return.
• The currency market witnessed the strengthening of the US dollar, partly driven by the Federal Reserve's cautious approach towards rate cuts and the economic momentum in the US. The combination of rising yields and a robust dollar negatively impacted global investment-grade bonds, which posted a negative return of -1.7% for the year.

Artificial Intelligence and Technological Innovation

A significant highlight of 2024 was the continued rise of artificial intelligence as a transformative force in global economies. According to reports, AI adoption contributed approximately $1.2 trillion to global GDP in 2024, as businesses and governments ramped up investments in AI research, development, and workforce upskilling. The US and China remained the dominant players in the global AI race, but India also made significant strides, positioning itself as a leader in AI development with its India AI initiative, which saw over $1.2 billion in government support.