Despite the ongoing uncertainty regarding the macroeconomic and geopolitical situation, 2024 has gotten to a great start for equity markets. In fact, despite the elevated inflation, high interest rates, and ongoing conflicts, many regional and global indices have managed to reach their all-time high values. This is also shared by many blue chips, and in today’s blog, we’ll detail all of these developments.

Given the whole macroeconomic and geopolitical situation currently present in the world, with conflicts starting and continuing in different parts of the world, the hungover from the high inflation rates recorded since 2021 still present, and the subsequent interest rate hikes designed to combat said inflation, one wouldn’t expect the last couple of months to go as well as they did.

In fact, while the inflation rates did decrease to mid-single-digit levels and below, depending on the region, the interest rates are still at their highest level in decades. While sentiment and meetings from central bankers across the world do point towards interest rate cuts, it wouldn’t be too far-fetched to say that we are not out of the woods yet. After all, while the global supply chains, especially in terms of energy did have time to adjust after the conflict in Ukraine escalated to a full war, the war in Ukraine is still ongoing. Also, the fighting between Israel and Hamas still continues, and the Red Sea is still more dangerous than it has been in a long time. Furthermore, countries are still reeling from the effect of the macroeconomic changes in the last couple of years, with several of the largest European countries being in a technical recession. In other words, none of these negative factors seem likely to end soon.

But despite this, equity markets across the region, and even the more developed markets are recording some of the best results ever. Of course, given the amount of negative news that has been witnessed in the last couple of years, the change of pace to more positive (e.g. reduced inflation, interest rate cuts) does influence the sentiment far more due to their positive nature. This is pretty visible if we look at a selection of regional and global indices below:

Selected regional and global indices’ all-time high values

Source: Bloomberg, InterCapital Research

The regional indices, such as SBITOP, CROBEX10, BET, and BUX, are at their all-time high values, all achieving them in March 2024. Even European indices, such as Germany’s main DAX are currently at an all-time high in March. FTSE 100 isn’t that far off from its all-time high, while Austria’s ATX has more ground to cover, however, this could be attributed to the even more uncertain nature of the country’s economic situation, due to its large dependence on Russian energy imports. Moving on, the S&P 500 and NASDAQ Composite, some of the most popular indices in the world are also currently at their all-time high.

While it might seem counterintuitive at first, the investment into equity at the time of high central bank interest rates (which by themselves, both lower valuations and increase the financing costs for companies) could be explained if we consider the other side of the coin: inflation. If high-interest rates were the only factor present, investing in equity would not be as attractive as bonds, money market holdings, and similar (and safer) instruments. However, due to said inflation, which in some countries was above 10% and remained there for months, and even in better cases it was at mid to high single-digit levels, investing in bonds, at least in the short-term does not seem as attractive. While equity is riskier, especially in situations where companies are under a lot more pressure, it does offer a higher potential for stronger returns.

In other words, if your return is negative no matter what with a bond due to inflation, even if it’s riskier to invest in equity, it still has a chance to offer you a positive return. Here we can see a direct effect of inflation and one of the primary responses to it: demand for assets that could not only outpace inflation growth but also give positive returns in this period.

Furthermore, even if the returns of equity were in line with inflation, the moment that the sentiment turns more positive, an increase in equity investments happens. After all, it is usually during these days that those magical “several days which make all the difference” happen. In other words, it not only paid out to invest into equity when it has lost some of its value due to the deteriorating economic situation, but it would also be prudent to maintain the position despite the short-term fluctuations as recovery is almost guaranteed as the economic cycles of recession and growth interchange.

Now turning our attention to regional equity, these points are also evident.

SBITOP index constituents’ all-time high values

Source: Bloomberg, InterCapital Research

Out of the 9 SBITOP constituents, 5 have recorded an all-time value in 2024, with some such as NLB far surpassing any levels it has achieved in its history. Several others, were at all-time highs in 2022, mainly Cinkarna Celje, Petrol, and Triglav. For Cinkarna Celje, 2022 as we know was a record year due to the high Titanium Dioxide prices, Triglav also recorded solid developments back then, while for Petrol its all-time high was recorded in January 2022, right before the start of the conflict in Ukraine. In other words, barring the disruptions that happened after the invasion, these companies could have been expected to also grow in their financials and share prices. The only company that was far from its all-time high was Telekom Slovenije, having achieved it all the way back in 2014.

CROBEX10 index constituents’ all-time high values

Source: Bloomberg, InterCapital Research

Croatia on the other hand, does tell us a different story. Even though the CROBEX10 index sits at an all-time high, only Podravka, Končar, and HPB achieved their all-time high value in 2024, and the closest one to them is Span, which achieved it back in July 2023. Several other companies, such as Atlantic Grupa and Ericsson NT achieved it right before the start of the invasion in 2022, and given the strong impact the whole situation had on them, they are still below that level. The remaining companies all achieved their all-time highs in the 2010s, with some of them such as HT and Atlantska Plovidba achieving it back in 2010.

BET index constituents’ all-time high values

Source: Bloomberg, InterCapital Research

Finally, taking a quick look at Romanian blue chips, 7 out of 20 of them reached an all-time high in 2024, and given the fact that these include the largest blue chips (by weight in index), such as Banca Transilvania, OMV Petrom, Hidroelectrica, Nuclearelectrica, etc., so did the index reach its all-time high. Several others reached it in 2021, 2022, and 2023, and several more reached it during the 2010s. And if we look at these companies, only several of them are more than >10% from their all-time high value. Given how cheap Romania is (in terms of P/E) and the expected solid dividend yields (between 5-7% on the index level), further growth could be expected.

Overall, the positive sentiment, combined with the desire to reduce the impact of inflation in the environment of elevated interest rates, has spurred large increases in stock prices, leading to multiple all-time highs. While the whole macroeconomic and geopolitical situation is still uncertain, there are clear positive signs ahead of us. As such, even the stocks that did not achieve their all-time high price, have a potential to achieve it this year. So to answer the question, is 2024 a year of all-time highs? Currently, it is, and it could shape up to be even more so, given only 3 months have passed thus far.