We've nearly reached 2024 after a very volatile 2023. In fact, the previous three years were incredibly volatile as well! For a bit of fun, I'm going to talk about which ASX sectors of the share market I think might perform strongly in 2024.
Remember, though, that the future is unpredictable. And I wouldn't suggest deciding on investments based on a relatively short time period, like 12 months.
Looking at the bigger picture, 2023 has clearly been a strong year for ASX tech shares. Will 2024 be another good year for tech? Perhaps. But the market already appears to have returned to an optimistic outlook amid potential US Fed interest rate cuts in 2024. I'm not betting on tech being a strong performer in 2024 like I did 12 months ago.
February 2024 might be a very interesting reporting season for the ASX, and the 2024 US election will likely spark some fireworks. But, if we just focus on the companies and valuations today, I like the look of these ASX sectors.
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Fund managers
The last couple of months have seen a strong rally in the share prices of some fund managers and I think most of 2024 will be positive as well. The outlook is improving, with interest rate cuts hopefully on the horizon and household confidence boosted as a result. This could lead to people investing more money with good investment managers.
The quality fund managers may be able to achieve net inflows from clients, and any growth of asset prices would also help funds under management (FUM).
In the ASX financial sector, I'm thinking that companies including GQG Partners Inc (ASX: GQG), Pinnacle Investment Management Group Ltd (ASX: PNI) and Pacific Current Group Ltd (ASX: PAC) look good to me.
I'm a little less certain about property fund managers from here because the impacts of higher interest rates are yet to fully flow through, particularly with debt costs. But, I think over two or three years, some property fund managers may be able to generate very good returns if interest rate cuts start happening.
ASX small-cap shares
I think the market hasn't fully appreciated the attractive opportunities on offer with smaller businesses. Maybe it's because smaller companies are seen as riskier. Maybe it's because some investors are still fearful of what might happen. Perhaps some small businesses aren't reporting good trading updates.
If I look at many of the valuations of S&P/ASX 200 Index (ASX: XJO) shares, I'd say many of them have recovered strongly from lows in 2022 or 2023 and don't look as good value as they did before. But, there are many more ASX small-cap shares that look attractive for the long-term, so this is an ASX sector I'd search for ideas.
Some of the ASX small-cap shares I like the look of include Close The Loop Ltd (ASX: CLG), Frontier Digital Ventures Ltd (ASX: FDV), Universal Store Holdings Ltd (ASX: UNI) and Airtasker Ltd (ASX: ART).
Online retailers
The impact of COVID-19 on retail is long gone – e-commerce ASX shares are no longer reporting results that compare against strong sales in 2021 or 2022.
Prior to COVID-19, online retailers were benefiting from the slow but steady adoption of online shopping, and those businesses were generally seeing improving scale and operating leverage.
I think companies that do a lot (or all) of their retailing online can perform strongly in 2024 – we're already seeing online sales perform well. For example, in the first few months of FY24, Coles Group Ltd (ASX: COL) and Temple & Webster Group Ltd (ASX: TPW) saw impressive growth in online sales.
I don't know if the Temple & Webster share price can keep growing in the short term, but sales could continue to do well. It could also be a good year for names like Accent Group Ltd (ASX: AX1) and Premier Investments Limited (ASX: PMV).
