Mike's Moments - December 2023

Global Markets Update (December 2023)

Wishing you a prosperous New Year! As we step into 2024, let's delve into key developments in the economy.

Top Highlights

●????? The UK government has intensified restrictions on semiconductor technology exports to China, reflecting a broader Western initiative to curtail Beijing's access to advanced microchips.? The restriction is driven by concerns from technology copying to potential military applications. Data from the Export Control Joint Unit indicates 14 license applications refused, with only two approved, emphasizing a more cautious approach to British technology exports. This shift aligns with global trends of heightened scrutiny on semiconductor exports for national security reasons, impacting companies like Graphcore and Arm.

●????? Nissan Motors has announced a strategic shift towards electric vehicles (EVs) at its Sunderland plant in the UK, with a commitment to achieving 100% electrification by investing ￡3 billion in plant expansion and battery infrastructure. The move aligns with global efforts for sustainable transportation, drawing praise from UK Prime Minister Rishi Sunak, who highlighted the substantial contribution of the automotive industry to the UK economy. However, as the EV sector gains momentum, there is a significant demand for skilled professionals, with over 34,000 jobs available but more than 346,000 active job postings in November, emphasizing the need for a well-trained workforce.

US Market Summary

The S&P 500 concluded 2023 with an impressive +24% gain, fueled by a slowing inflation rate, and signals from the Federal Reserve indicating the conclusion of its rate-hiking efforts. The S&P 500 experienced its best winning streak since 2004, rising for nine consecutive weeks. The Nasdaq Composite also thrived, achieving its best year since 2020, driven by the enthusiasm surrounding artificial intelligence, particularly benefiting Big Tech stocks. The Dow Jones Industrial Average secured a +13.7% gain for the year marking a new record in 2023. The Nasdaq Composite posted an impressive +43.4% gain, its best performance since 2020.

Stocks rebounded in 2023, driven by the artificial intelligence narrative, benefiting tech giants like Nvidia and Microsoft. Despite challenges from rising interest rates, the Nasdaq saw significant gains. The Federal Reserve's indication of a pause in rate hikes and potential cuts led to a drop in the 10-year Treasury yield. Strong labour data and decreasing rates boosted investor confidence, preventing a recession. In Q4, the Dow achieved record highs, focusing on industrials.

UK Market Summary

The FTSE 100 showcased resilience, gaining 3.8% amid challenges posed by Britain's stagnant economy and the highest interest rates since the 2008 financial crisis. While it lagged behind its global counterparts experiencing substantial rallies, the index achieved a milestone by surpassing 8,000 points in mid-February. Fluctuations included its best one-day performance on September 14, rising by 1.95%, and its worst decline on March 14, dropping by 3.83% due to global banking sector turmoil. Despite economic challenges and rising interest rates, the FTSE 100 added ￡70.5 billion in value. Rolls-Royce emerged as the top-performing stock, tripling its share price to ￡299.70 through a strategic restructuring program. Retailer Marks & Spencer experienced significant success, with its share price more than doubling as it navigated cost-of-living concerns and achieved growth in both fashion and food businesses. However, mining companies like Anglo-American and Fresnillo faced substantial declines amid a slowdown in the Chinese economy and energy market turbulence. Expectations of potential rate cuts in 2024 arise as rapidly cooling inflation and stalled interest rates shape the market landscape. As the FTSE 100 marks its 40th anniversary on January 3, reflecting on its launch in 1984 as a tradable index of the UK's top 100 companies, it encapsulates a year of diverse market performances.

Emerging Market Summary

The MSCI Emerging Markets Index experienced an increase of +7.04% year-over-year in 2023. The MSCI China All Shares Index which returned -2.72% outperformed the Emerging Markets ex-China Index with a return of -3.33% for the quarter, narrowing the year-to-date performance gap between China and Emerging Markets excluding China. This shift was influenced by a surge in semiconductor stocks and a slower-than-anticipated recovery in China. Taiwan, Brazil, and India led in performance for the year, while MSCI China continued to lag. Energy and information technology maintained their sector lead year-to-date, with semiconductors retaining a prominent position despite a slight retreat in the third quarter. OPEC's controlled daily barrel supply benefited the energy sector. Conversely, utilities and industrials underperformed, and challenges in the healthcare sector stemmed from a lack of policy direction and an anti-corruption campaign. The materials sector faced oversupply and the impact of an economic slowdown, while consumer-related sectors lagged due to low expectations for China's consumer economy in 2023.

UK Government Enforces Stricter Regulations on Semiconductor Exports to China

The British Government has tightened restrictions on the export of semiconductor technology to China as part of a broader Western effort to limit Beijing's access to advanced microchips. There was a substantial increase in the rejection of license applications for semiconductor exports to China in 2023, a departure from previous leniency. The UK, though not formally part of a joint international agreement restricting Chinese access to high-tech semiconductor tech, appears to be taking a tougher stance. This shift is driven by concerns ranging from technology copying to potential military applications.

The UK tightened its stance on semiconductor technology exports to China in 2023, refusing 14 license applications and approving only two, which marks an increase from the previous year. The refusals primarily targeted semiconductor manufacturing equipment, components, and software, often intended for government customers. The lack of specificity regarding the technology type indicates a broader cautious approach. This shift aligns with the UK's semiconductor strategy, emphasizing stricter export controls for national security. Recent instances, such as Graphcore's closure of its China business and Arm's layoffs in China, underscore the tangible impact of these restrictions on British companies. Globally, heightened scrutiny on semiconductor technology exports reflects a trend driven by geopolitical tensions, aiming to safeguard sensitive technologies and protect national interests.

Nissan Declares Full Electric Transformation for UK Facility Amid Heightened Importance of Workforce Expansion

Nissan is shifting exclusively to electric vehicles (EVs) at its Sunderland plant in the UK, aiming for 100% electrification by 2030. The company plans to expand the EV plant and improve battery manufacturing infrastructure. The Sunderland facility will be powered solely by wind and solar farms, reflecting Nissan's commitment to green energy. UK Prime Minister Rishi Sunak praised the move, emphasizing the economic impact of the automotive industry's ￡71 billion annual contribution to the UK economy.

Source: GlobalData2023

As the electric vehicle (EV) industry gains momentum, the demand for skilled professionals is surging. In November, over 34,000 EV-related jobs were filled, yet the contrast of more than 346,000 active job postings seeking suitable candidates highlights the urgent need for a well-equipped EV workforce. The Department of Education must formulate a comprehensive, long-term plan to ensure a sufficient supply of trained EV workers and technicians. Failure to address this skills gap could jeopardize achieving the 2030 targets for EV uptake, with projections indicating a potential shortage of around 25,000 workers in the EV industry by that time. Despite the commitment to banning petrol and diesel car sales by 2035, the shift towards EVs aligns with global efforts for sustainable transportation and emissions reduction. The decision to transition the Sunderland plant to EVs, supported by a ￡3 billion investment and Prime Minister endorsement, signals opportunities in production, battery manufacturing, and renewable energy, emphasizing the need for workforce development in the expanding green technology sector.

If you have any questions about capitalizing on these trends to formulate a strong financial strategy for sustained success in 2024, don't hesitate to send a direct message. Remember the significance of maintaining a consistent investment approach. ??. Cheers to a fruitful 2024! ??

Michael G. Donkor CFP.