Investing in 2024 and what Industries to avoid
The past year has been nothing short of pandemonium worldwide and in Canada, with global tensions, conflicts, heightened inflation and interest rate hikes dominating news headlines.
Given such unpredictable circumstances, knowing when and where to funnel your investments can be a tough ask.
We have compiled some opinions on markets to approach with caution in 2024 for reasons ranging from volatility to untried tech, regulations or prevailing economic conditions.
Challenges and the road ahead
The Manulife Investment Management Canada Outlook 2024 identifies three challenges:
A downward trend in the level of economic activity on a per capita basis that has been prevalent since September 2022
Weakened economic growth in 8 out of 20 Canadian industries, including manufacturing and construction, on a Year-over-Year basis
The unemployment rate expanding at the same rate as employment, leaving it vulnerable should employment creation falter.
Other issues identified by the report include excess savings, less confidence in job security, pent-up demand that has seen shrinking spending on building material, sporting goods, leisurely activities, and a slowdown in housing activity. Recurring fears of a recession are also bound to colour investor sentiment this year.
Despite these trends, 2024 is set to be the year of rate cuts, with inflation curtained to around the 3% mark and edging within reach of the Bank of Canada's 2% target. This could signal upcoming cuts in the BoC benchmark lending rates that could boost the viability of Canadian bonds.
Now, let us look at some sectors within Canada that could invite increased investor scrutiny owing to the current environment.
Fossil Fuels
Despite Canada's strength in fossil fuels, an increasing global focus on sustainability and renewable energy could be susceptible to increased regulatory pressures, divestment campaigns, and declining demand.
The sector is already facing strong regulatory headwinds with pressure from the Oil and Gas sector emissions cap and the clean electricity regulations as Canada follows the world in shifting away from traditional coal, oil and gas. Another worry could be the pace of growth in clean energy that has surpassed fossil fuels globally.
According to IEA Executive Director Fatih Birol.
"Clean energy is moving fast – faster than many people realize. This is clear in the investment trends, where clean technologies are pulling away from fossil fuels."
He added, "For every dollar invested in fossil fuels, about 1.7 dollars are now going into clean energy. Five years ago, this ratio was one-to-one. One shining example is investment in solar, which is set to overtake the amount of investment going into oil production for the first time."
Slow Death of Fossil Fuel Industries?
Despite its popularity, the pace of adoption of renewable energy still leaves large parts of the world reliant on conventional energy sources. Of the estimated $2.8 trillion invested into energy in 2023, the IEA estimated that over $1 trillion- a smaller but substantive amount is still channelled into fossil fuels.
Canada itself has seen significant investments into this sector, with projects like the CAD 30.9 billion Trans Mountain pipeline expansion project (TMX) in the works and Alberta recording all-time record oil production numbers in November 2023. The fossil fuel industry has also worked out some wiggle room in the latest "compliance flexibility" clauses that will allow the sector to maintain production and consumption at their current levels.
While the sector should be approached with caution, it is unlikely to fall off, at least in the short term.
Legacy Media
Traditional print media and cable television companies have struggled to adapt to the digital age. The rise of streaming services and social media platforms that have hogged eyeballs and advertisers have disrupted their business models, leading to declining revenues and viewership.
The decline in legacy media has been headlined by many big names either putting print issues on the chopping block- as was the case with Popular Science or even in digital news with BuzzFeed shutting down or Vice Media filing for bankruptcy. Employees in traditional media have also been subject to layoffs and cuts as companies increasingly fail to justify their expenses, given their declining and aging subscriber base.
The fall from prominence has been a recurring topic for the past decade as more and more advertisers move online to flashy tech companies. Even in the United States, the country has already lost a third of its newspapers and two-thirds of its newspaper journalism jobs since 2005, with an estimated 2.5 newspapers disappearing weekly. According to the employment firm Challenger, Gray and Christmas, an estimated 2,681 journalism jobs were lost in 2023.
The sad state of affairs and the unclear path forward for a legacy industry primarily catering to an aging reader base makes legacy media a very risky affair, with most investors looking to steer clear of it.
Final word
In conclusion, while there are industries that may face challenges or be less favourable for investment in 2024, such as traditional retail, fossil fuels, legacy media and stagnant sectors, it's crucial for investors to approach investment decisions with caution and thorough research. Consider evolving market trends, regulatory changes, and technological disruptions before investing in this ever-changing economic landscape. Diversification and seeking guidance from financial professionals remain key strategies for navigating uncertainties and optimizing investment portfolios in 2024.
