Preparing for the golden age of investment in 2024 - Four key words to watch out for

People's interest is shifting from savings to investments, partly due to the new NISA starting in 2024.

Securities firms are also taking this opportunity to focus on improving the investment environment through various campaigns, and the investment environment is expected to become more open and familiar than ever before.

In this article, Iolite looks at the current state and future of four keywords selected by Iolite that are likely to attract even more attention in 2024.

Gold.

The price of gold hit a record high of 10,000 yen per gram in late August 2023. It boasts overwhelming confidence as a safe asset, but what will the trend be in 2024?

Gold above 10,000 yen per gram - further rise due to a weaker yen and inflation?

The price of gold rose in both yen- and US dollar-denominated terms, reaching a record high of 10,000 yen per gram in late August at over-the-counter prices. The situation has remained unchanged since then, with the price hovering around 10,500 yen in early November.

The background to this is the continuously rising price of gold in the New York market and the weakening of the yen. Needless to say, geopolitical risks are involved.

Gold has been bought as ‘contingency gold’ amid ongoing global turmoil, such as the Corona disaster that began in 2020 and the Russian-Ukrainian problem that has not subsided at all.

This, combined with inflation and the weakening of the yen, pushed the published domestic price above 8,000 yen per gram in 2022. In March of the same year, the price reached a then-record high of 8,860 yen.

The price has continued to rise steadily since then, reaching the 9,000 yen level in March this year and finally exceeding 10,000 yen.

However, overseas dollar-denominated prices peaked at USD 2,000 in April this year and have since fallen, most recently to the USD 1,900 level. In contrast, the yen-denominated price has continued to rise, which is related to the depreciation of the yen.

Needless to say, the background to this is the difference in interest rates between Japan and the US due to US interest rate hikes, but unless there is a change in US monetary policy and the yen's depreciation is halted, the surge in the gold price is unlikely to stop.

As long as geopolitical risks and economic uncertainty exist, reliance on gold will continue. The situation in Russia and Ukraine remains unchanged, leading to high resource prices, and what will happen to the Palestinian issue that broke out in October?

Unless there is a convergence, demand for gold as a safe-haven asset will remain high.

The bank failure in the US in 2023, which created uncertainty in the financial system, is another factor driving assets towards gold.

In addition, central banks are broadening the types of foreign exchange reserves they hold to avoid concentration risk in their holdings, and gold is one of the measures being used.

The accelerated purchase of gold, which has an unwavering global value, rather than legal tender, which depends on the creditworthiness of the issuing country, has boosted prices and is expected to continue to do so.

In terms of actual demand, the need for gold is not only persistent, but also increasing. In addition to jewellery and investment, gold is also used in industry, and in recent years it has been increasingly used in semiconductors and other electronics-related applications.

On the other hand, new gold mines are not being developed and the world's annual gold output is flat. Supply is not keeping pace and it is only natural that the price will rise.

This could lead to a further rise in the gold price. Gold investment is likely to attract more attention in Japan as well.

Actively managed ETFs

Investment trusts and ETFs have become popular as investment targets for NISA and iDeCo in recent years. Until now, only index-type ETFs were available in Japan, but the ban on active-type ETFs has been lifted.

Focus on active ETFs, which are not bound by indices and other factors!

On 29 June 2023, the Japan Exchange Group (JPX) lifted the ban on the listing of actively managed ETFs (active ETFs) on the TSE.

The first listing was made on 27 September, and trading has now begun in several products, including the NEXT FUN DS Japan Growth Equity Active ETF (2083) Investment Trust, which invests in stocks with high medium- to long-term return on equity (ROE) potential.

Until now, only index-type ETFs, which are managed to be linked to some index such as the Nikkei Stock Average or TOPIX, have been listed in Japan, but this measure has made it possible to manage ETFs in line with the management policies of managers and fund managers without being bound by an index.

In addition to those listed above, active ETFs with unique themes, such as requests to improve P/B ratios below 1x and domestic high dividend stocks, have also appeared on the market.

Compared with active funds, active ETFs tend to have lower trust fees and are required to disclose information on their holdings, which ensures transparency in their management.

They are also attractive to investors because they offer a wider range of options, allowing them to diversify their investments. While index ETFs are still not a major player in the mainstream, they are likely to attract more attention as the number of products is expanded in the future.

Active ETFs are sure to become a unique financial product for those who lack confidence in individual stocks but want to enjoy the investment benefits of an index.

Alternatives

Besides traditional assets such as equities, there are now a variety of other investments that can be tried through FX, etc. What are the most promising genres in 2024?

FX, real estate and alternatives - Which investment genres will be hot in 2024?

In 2024, the new NISA will start. The new system is more flexible than the current one, so it is expected that more people will be interested in individual stocks and investment trusts.

As it will be easier to buy stocks with smaller amounts, stock splits are also noticeable. High-dividend stocks will also attract attention.

The yen has continued to weaken, standing at 151 yen to the dollar as of early November. As long as policy rates in the US and Japan remain unchanged, the yen will continue to sell off.

For FX investors aiming for swap points, investing in the US dollar and other high-interest currencies may be a tasty option. There are also opportunities to earn trading profits if new trends emerge due to changes in monetary policy.

Furthermore, condominium prices continue to soar, particularly in urban areas, and the weak yen is also expected to attract wealthy foreigners. Although there are concerns about financing and yields when property prices are high, there are ways to aim for capital gains.

If cash reserves are low, there is also the option to try property investment crowdfunding or REITs. It is advisable to assess the situation carefully and take up a challenge in a genre where the odds are high.

Bitcoin.

The bitcoin price remained steady in 2023. As of early November, the price was at 5.54 million yen, its highest level since the beginning of the year, but what will happen next year?

Bitcoin price is at a new high since the beginning of the year, with a forecast of over JPY 25 million in 2024?

In 2022, the industry was under a cloud with the collapse of the crypto exchange FTX and Terraform Labs, the development organisation for the crypto asset TerraUSD, but the situation has calmed down since the beginning of 2023.

In March, US-based Silicon Valley Bank and Signature Bank collapsed, while Swiss financial giant Credit Suisse also fell into financial trouble and was acquired by the country's investment bank UBS.

Needless to say, this was the biggest financial crisis since the collapse of Lehman Brothers, and global interest rate hikes and inflation also had an impact, with bitcoin attracting attention as a safe-haven asset and pushing up its price.

The rise since the summer has also been related to the topic of physical bitcoin ETFs in the US: as of November, 12 investment firms had applied to the SEC (US Securities and Exchange Commission) for a physical bitcoin ETF, and it is reasonable to assume that expectations of approval have led to the rise.

Actual approval would increase demand for bitcoin and provide a further price boost.

How has the Israeli-Hamas war affected the situation? On 7 October local time, Hamas, which effectively controls the Gaza Strip in the interim Palestinian Authority, launched a surprise attack on Israel.

The Israelis reportedly retaliated, but the collapse of investor confidence in risk assets led to a temporary drop in the price of bitcoin.

This is thought to have been caused, among other things, by a shift in assets to gold and oil. However, expectations for the aforementioned bitcoin physical ETF were very high and bitcoin prices rose as a result.

As for the future, according to a report published in July by research firm Fundstrat, the price of bitcoin could reach USD 180,000 (JPY 25.2 million) before its scheduled half-life in April 2020.

The half-life is when the crypto assets earned as rewards during mining are halved.

It has happened in the past in November 2012, July 2016 and May 2020, in approximately four-year cycles, and each time the price of bitcoin rose significantly. It is considered likely that similar price movements will occur the next time.

In addition, according to Fundstrat, the daily importance of bitcoin and mining rewards are equal at around USD 25 million, but if rewards decrease during the half-life, the bitcoin price would have to rise significantly to meet the equilibrium between buyers and sellers.

The key is a physical bitcoin ETF being applied for by major US investment firm BlackRock, which estimates that if approved, daily demand could reach USD 125 million and the price before the half-life could reach USD 140,000~180,000 (approximately $19.6m to $25m).

The combination of these two factors, the half-life and physical bitcoin ETFs, is likely to further boost the market in 2024.

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