What new ‘black swans’ could the world face in 2024?

Marlborough’s multi-asset team have considered a range of unlikely yet plausible scenarios and penned four potential ‘black swan’ events that could have a significant impact on markets in the year ahead.

China turns its back on Russia to increase trade with the West

China has proved Russia’s most important ally during the war in Ukraine, with a US government intelligence report citing Beijing as helping Russia “mitigate both the impact of Western sanctions and export controls”.

Fed minutes warn rates could remain high ‘for some time’

The report highlighted China’s increased purchases of Russian oil and gas and cited the “probable” supply of equipment including drones for use in Ukraine.

However, China is contending with serious economic challenges, including weak growth, high youth unemployment and a deeply troubled property market.

Chinese president Xi Jinping’s economic predicament gives him a compelling reason to improve relations with the US and Europe and begin to rebuild valuable trading relationships.

It is possible a decisive military breakthrough by Ukraine or another domestic challenge to Vladimir Putin’s authority, as we saw with the Wagner Group’s mutiny, could be enough to persuade president Xi to rein in his support for Russia.

Investment trusts close 2023 with 4.6% performance boost

Putin could struggle to sustain the war without China’s support and be forced to surrender some occupied territory and try to negotiate peace terms.

If Beijing did turn its back on Moscow to rebuild trade with the West, we would expect Chinese stocks to enter a bull market following three years of depressed performance.

Super-computers power a medical breakthrough

Scientists are due to switch on Jupiter, Europe’s first exascale super-computer, this year.

Exascale machines can perform one quintillion – which is one billion billion – computations per second. This is five times faster than previous super-computers.

The US already has one exascale machine and is due to switch on two more this year. China is believed to have two in operation.

Sell side equity sentiment reaches highest level since May 2022

Analysing vast volumes of data and making sense of complex genetic patterns, researchers believe exascale computers could drive significant medical progress in areas such as cancer treatment.

In the event of a significant breakthrough by researchers in Europe then, as well as the huge benefits for humankind, we would expect European healthcare companies to pull European stocks to the top of the global equity leaderboard in 2024.

Kosovo tensions escalate into new European conflict

Around 600 British soldiers have been deployed to northern Kosovo as part of a NATO peacekeeping force after tensions escalated with neighbouring Serbia.

In September, the US accused Belgrade of massing troops near the Kosovo border.

Only days earlier, 30 heavily armed ethnic Serbs ambushed police in Kosovo in a town close to the border. One police officer and three gunmen were killed.

Serbia’s president Aleksandar Vucic says his country will never recognise the independence of Kosovo, its former province.

Active managers warn of ‘crowding risk’ in mega-cap tech in 2024

Commentators have warned that with attention focused on Ukraine, simmering tensions in northern Kosovo could easily flare up into a second military conflict in Europe.

“Resolving the dispute between Kosovo and Serbia is no longer just a political matter, but a serious security issue for the region and for Europe,” analysts from the European Council on Foreign Relations wrote in September.

A second military conflict in Europe would be likely to contribute to a rise in global spending on defence, resulting in continued strength for defence stocks.

Artificial intelligence delivers a breakthrough on climate change

The United Nations climate summit, COP28, ended with countries agreeing to transition away from fossil fuels, raising the key question of which energy sources will be used in their place.

Scientists are using the rapidly growing power of artificial intelligence as they seek to unlock the potential of nuclear fusion as a source of safe and abundant carbon-free energy.

In fusion, two atomic nuclei are combined to form a denser one, which releases energy in the same process that powers the sun.

Institutional fixed income investors set to take on greater risk in 2024

The potential advantages over existing fission reactors are huge, including no long-lived radioactive waste and no risk of a meltdown.

The stumbling block is controlling plasma hotter than the surface of the sun created during the fusion process as hydrogen atoms are smashed together.

However, Google’s AI division, DeepMind, has already trained an AI system capable of autonomously managing the process on a limited scale.

With construction of the world’s largest experimental nuclear fusion reactor due to be completed in France in 2025, nuclear fusion is an increasing focus for AI.

This could drive a significant breakthrough. Any such news would send shares in energy-intensive businesses soaring.

Nathan Sweeney is chief investment officer of multi-asset at Marlborough