A Vote for Value Stocks in 2024

At Mutual Series, we do not believe the packed and contentious 2024 global election season will upend the major long-term trends around supply-chain links, energy security and defense—all of which can further support certain value stocks.

Much of the world votes in 2024, and the potential for heightened geopolitical uncertainty and greater equity market volatility abounds. With citizens in more than 50 countries going to the polls, representing nearly half of the world’s gross domestic product, a change in some countries’ domestic policies could inevitably follow. Regardless of the outcomes, we believe that countries’ long-term focus on supply chain resilience, energy security and defense spending should continue—a potential boon to various companies in the value universe.

Reforging supply chains

From the slate of elections to the grinding Russia-Ukraine war and flashpoints across the Middle East, the world is on greater edge in 2024 than it has been in some time. As a result, company supply chains have come under increasing pressure. Most recently, Houthi attacks on shipping through the Red Sea has led some to abandon the shorter routes through the Suez Canal to take the much longer route around Africa. This rerouting increases the time it takes goods to reach their destination and can raise shipping costs.

Potential inflation aside, what the Red Sea tensions—and geopolitical uncertainties—demonstrate is the ongoing need for companies—and countries—to reforge their global supply chains. Efforts that began during the pandemic to bring manufacturing closer to home and fortify supply chains should continue apace, in our view. Companies are weighing the risks of maintaining manufacturing facilities in far-off countries against the cost of reshoring. As such, supply chains that stretch around the world are starting to be unlinked in favor of ones that are closer to home or that run through friendly countries.

Global trade growth is softening as a result. According to the International Monetary Fund’s January World Economic Outlook, world trade should grow at 3.3% and 3.6% in 2024 and 2025, respectively, below the historical average of 4.9% growth. Weaker trade underscores the softer global growth, greater trade distortions and the unwinding of global economic integration, partly due to a tenser geopolitical environment.1 Overall, we have seen global trade soften since peaking in August 2022 (see Exhibit 1). As supply chains move, we see a greater need for the materials to build new plants, for the tools to automate them, and for new shipping routes—all areas where value companies are heavily involved.

Exhibit 1

World Trade Volumes Soften Since 2022