A Message from Mike: Three Outlook Scenarios

Embracing the start of a new year, it's important to reflect on the broader investment environment which has shown resilience and adaptability. The beginning of the year has demonstrated promising developments across various sectors, suggesting a dynamic landscape for investors.

Positive Start from Mega-cap Tech

We are well into February now, and all the summer public holidays are firmly in the rear-view mirror, meaning it's "back to the grind," as they say. That usually signals the onset of more settled weather. I hope that 2024 has some positives in store for you and your loved ones.

We're pleased to share strong performance for a number of our funds over the last year, with the newly named Pie KiwiSaver Growth Fund ranking second for one year performance in its category in 2023.

If you haven't considered switching your KiwiSaver to Pie, then perhaps now's the time to give it some thought.
Markets had a mostly positive start to the year, with gains once again coming from mega-cap tech. This was especially true of the semiconductor sector, with renewed optimism about the potential growth from companies investing more in Artificial Intelligence (AI).

The main underperforming equity market in the month was China, which almost feels uninvestable, compared to India which has outperformed China by around 100% in the last 5 years. I've recently returned from a short break to the Indian subcontinent, and it's evident to see that there is a growing middle class in this part of the world benefiting from strong economic growth. We access the Indian market in our Global Growth Funds.

Three Outlook Scenarios for the Coming Year(s)

I am a big fan of investment strategist Ed Yardeni, and you can find much of his research online for free at his website yardeni.com. He has suggested three outlook scenarios for the coming year(s) ahead, and I'll share them with you, as I agree with them and I can't find any reasonable alternatives:

• A 60% probability that the next five years will resemble the "roaring '20s" of 100 years ago. Just like back then, new technology, specifically in the form of AI, is going to drive significant productivity improvements, which in turn will help spur economic growth, prosperity, and new inventions.
• A 20% probability that the next few years will mirror the late 1990s tech bubble, where new technology (AI, like the internet before) will fuel a stock market bubble led by a narrow sector of the market. Yardeni doesn't see this as being all that bad; after all, the world recovered from the tech wreck pretty quickly. As for investors, if this does happen, beware of investing at the top because bubbles can deflate prices by 90%. Cisco, which was the poster child for the '90s boom, went up over 100 times in 5 years. NVDA, the namesake for this AI boom, is up around 10 times since pre-COVID and 5 times since ChatGPT hit the scenes. If we get this scenario, you want to strap in, because the most exciting part is usually the last 12 months. The Nasdaq was up 85.6% in 1999. Just remember your parachute.
• A 20% probability that we are in a 1970s-style inflationary period. During that time, it was successive wars in the Middle East and skyrocketing oil prices that led to an inflationary spiral. As we are once again entering the breach in this region, whilst a lower probability, it's still a high-risk outcome if it occurs and worthy of keeping on the radar. Despite oil dependency being lower than when I was born, it's still a major part of the global economy.

So there you have it. With the current situation globally being falling inflation, resilient growth (particularly in the USA), combined with the potential for lower interest rates, the outlook does look pretty good. Prices aren't as cheap as a year ago, but nobody wants to buy when it's raining outside. It's not raining now, but remember the sunscreen in case it gets hot, and keep an umbrella handy.

Thank you again for your support. If you have any questions, please don’t hesitate to email me on [email protected]

Founder and Chief 
Investment Officer

Information is current as at 31 January 2024. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme and Pie KiwiSaver Scheme (the Schemes). Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Schemes' investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you. For information about how we can help you, our duties and complaint process and how disputes can be resolved, or to see our product disclosure statement, please visit www.piefunds.co.nz. Please let us know if you would like a hard copy of this disclosure information. Past performance is not a guarantee of future returns. Returns can be negative as well as positive and returns over different periods may vary.