In recent years, global economies have weathered a turbulent period marked by the impacts of the pandemic, surging global inflation, economic stagnation, and geopolitical shocks and wars. However, it now seems that brighter times are on the horizon. High interest rates are taming inflation, and market optimism suggests a shift in trends, with gradual economic growth driven by future interest rate reductions.
While the beginning of 2023 did not promise much for financial markets, the situation has significantly improved over time. Stocks have shown remarkable resilience, and despite mixed macroeconomic data, we have witnessed a recovery in stock markets throughout the year.
However, the focus is not solely on the green numbers. According to the MSCI World index, global stocks have gained nearly 15 percent since the beginning of the year. U.S. stocks performed even better, with the S&P 500 index growing by almost 20 percent.
Surprise from Czech Real Estate Funds
The surprise of the year has been Czech real estate funds. Despite a decline in property prices domestically, these funds have performed relatively well. The Broker Consulting mutual fund index shows an average year-on-year increase of 2.6 percent. This highlights the advantages of investing in real estate funds, which, through diversification and a focus on commercial properties, consistently generate stable returns, even amidst the current housing market downturn.<br/> High Rates as a Challenge
The basic interest rate of the Czech National Bank remained at seven percent this year. Some foreign central banks continued to raise their rates during the year, with the primary reason being the persistent need to reduce inflation. Today, we can say that this has been successfully achieved. However, high interest rates are a double-edged sword, slowing down the economy on one hand while bringing significant opportunities to capital markets on the other.<br/> Rising Popularity of Repo Funds and Money Market Funds
This situation has most significantly affected debt securities, both short-term money market bonds and long-term bonds. Some investment firms have seized this opportunity by introducing so-called repo funds, whose popularity has grown. These funds offer investors yields corresponding to the current repo rate, reduced by the fund's expenses. Currently, this translates to an expected yield of over six percent per year, coupled with minimal risk and volatility.<br/> Money market funds are also currently very attractive. However, it is important to note that their yield will gradually decrease in the future along with interest rates. Longer-term opportunities may also be found in bond funds with a long average maturity, which, due to high rates, are trading at very attractive prices and offer yields exceeding five percent annually. It still holds true that such returns were once only dreamed of for quality bonds in the past.<br/> 2024: A Year of Return to Stability<br/> In the coming year, we can most likely expect economic stabilization and, most importantly, a gradual return to the inflation target. Taming inflation is also associated with the anticipated and long-awaited reduction in interest rates. This will further stimulate the economy and alleviate pressure on external financing. This relatively positive scenario could bring additional opportunities in the markets and further enhance the positive sentiment among investors.<br/> In the next year, we may witness continued revitalization and growth, which is good news for the investor community as well as the general public.