At the start of 2024, the Oracle investment team looked to the year ahead and decided to have a crack at predicting the future.
Our predictions are not supposed to represent our base case scenarios for the year but instead encourage thoughtful conversations on a range of topics we faced in 2024.
We have revisited the predictions from January 2024 to see how we performed; our results were interesting.
Trump is convicted yet returns to the White House – chaos ensues.
We noted at the time that predicting an event that betting markets had as a front runner is not very impressive. That’s why we upped the difficulty and added on the prediction that Trump would be elected despite also being convicted of a felony. Both of these occurrences took place, of course, with the president-elect found guilty on 34 counts of falsifying business records to pay off porn star Stormy Daniels in May and being elected President (again) in November.
The only that remains to be seen is that chaos would ensue. The stock market certainly has enjoyed a romp in the weeks since, and the USD has also strengthened, but I wouldn’t exactly call that chaos. Likewise, Trump has busied himself with making cabinet appointments as well as appointing business buddy Elon Musk to the Department of Government Efficiency (DOGE), but we will most likely have to wait until Day 1 of his presidency to see the axe start swinging.
Stock market Impact from weight loss drugs will be contained.
In January 2024, many companies – from junk food manufacturers to healthcare companies – were reeling from the market’s response to the onset of GLP-1 drugs such as Novo Nordisk’s Ozempic and Eli Lilly’s Wegovy. The market reaction was a clear case of shooting first and asking questions later.
The fear of GLP-1 drugs in most sectors of the market has certainly faded from the front of the mind. ResMed was a major concern to the market, falling 36% between July and October 2023. As the fear subsided, RMD is up 75% since the bottom, well above any time in the last 2 years. The movement in junk food producers has been less dramatic, but there was still a marked fall from July to October 2023 (the peak of the fear/excitement) but in each case, except for perhaps Pepsi, there is a clear recovery.
We think this gives our prediction a pass mark but we’ll award a bonus point for our final note, which suggested where the real risk may lay: in the companies who were directly providing weight loss solutions such as Weight Watchers (NAS:WW). Weight Watchers is down 82% over the last year, as subscribers continue to fall.
Small Cap equities to outperform Large Cap equities.
Sadly this prediction failed to materialise, as Small Cap stocks extended their underperformance versus large cap stocks. At the time of writing, the Small Ordinaries Accumulation Index had gained a respectable 11.92%, yet the ASX 200 Accumulation Index returned an impressive 16%. Things appeared to be tracking nicely for small cap stocks, outperforming by 2% by the end of Q1. However, this was harmed by a combination of ;
As we finally look to get rate relief from the RBA in 2025, perhaps this prediction will materialise one year later than predicted.
Chart: Small Ordinaries performance relative to ASX200 in 2024:
Chart: Small Ordinaries performance relative to ASX200 for the past 3 years:
S&P/ASX200 to provide more than 15% total return in 2024.
This worked out precisely as we expected with S&P ASX 200 providing 15.1% return as of the end of November. What lesson do we learn? First, ignore the pundits and their ‘storm in teacup’ pessimisms. At the time of this prediction, consensus was exceedingly pessimistic, even though markets were rallying strongly towards the end of 2023. However, we ignored all the pessimists and looked towards forward returns, and that proved to be the correct thing to do. Second, as active managers we should predict not the market moves but the portfolio moves. The Australian Equities portfolio has now beaten the benchmark two years in a row with a significant margin, and so there is more margin safety in predicting the portfolio returns vis-à-vis market returns. Moreover, we could observe that the portfolio was undervalued and was flagging strong positive expected returns as we made those predictions for 2024.
News Corp to IPO Foxtel in 2024.
This prediction hasn’t come to fruition; however, we believe the sale of Foxtel is still a likely outcome.
News Corp declared at their full year results in August that there has been “third-party interest” in Foxtel and sales discussions are “active.”
In recent years Foxtel has been transforming itself from a cable television business to a streaming service, and while there is plenty of competition in this space, Foxtel still hold the T.V. rights to the three largest sports in terms of viewership (AFL, NRL & Test Match Cricket).
As owners of News Corp in the Oracle Emerging Companies portfolio, we believe a sale or IPO of Foxtel will unlock value for shareholders. We have previously written about our investment thesis in News Corp in our blog article, What is SOTP investing? Breaking out each business owned by News Corp and ascribing a value to the separate businesses, it is clear that the market is putting very little weight towards their businesses outside of REA Group. Despite the share price being up over 100% since we first bought shares in News Corp, the sale of Foxtel could provide a catalyst for the share price to move higher as we still believe the sum of the parts valuation for News Corp is well above the current valuation.
China is unlikely to advance towards large-scale commercialisation of 5nm process node technology in 2024.
The short answer is YES, China has not proceeded to large-scale commercialisation of 5nm process node technology (or lower) in 2024. Stringent US export controls on advanced semiconductor (or chip) manufacturing equipment have presented China with significant challenges to advance in process technology below 7nm.
The older deep ultraviolet (DUV) lithography equipment from ASML, purchased by Chinese companies such as Semiconductor Manufacturing International Company (SMIC) before sanctions were enforced, is rumoured to manufacture 5nm chips for Huawei, and the new Kirin system-on-a-chip (SoC) to be found in the Mate70 series of smartphones released by Huawei at the end of November 2024 is reported to be based on the SMIC 5nm process. Very little insight could be gauged from SMIC’s interim report for 2024. Analysis of revenue is only provided by application and size of wafers. Ongoing R&D projects as per management discussion in the interim report 2024 refer to 28nm and higher technology platforms only.
The 3Q24 results of Taiwan Semiconductor Manufacturing Company (TSMC) reflect that 52% of total revenue is derived from 5nm and 3nm process technology, and better yields and lower cost of production translate into higher gross margins than SMIC. The first contributions from TSMC’s 5nm and 3nm process technologies to revenue were in 3Q22 and 3Q23 respectively, implying SMIC as the leading semiconductor foundry in China lags at least two generations behind the leading edge.
Toyota still does not emerge as the best competitor to EV pure-plays in EV in 2024
The question we need to answer is whether Toyota as a legacy automotive manufacturer can challenge the likes of Tesla and BYD for leadership in battery electric vehicles (BEV) and emerge as it did in the world of internal combustion engine (ICE) propulsion as the dominant force in the BEV world.
Toyota Motor Corporation manufactures cars under the Toyota, Lexus, Daihatsu and Hino brands. The company has so far decided to continue to rely on ICE and hybrid electric vehicles (HEV) to satisfy existing market demand.
If one looks at cumulative vehicle (unit) sales in 2024 up to September, Toyota as a group continues to lead with 7.61m vehicles, followed by Volkswagen (6.13m) and Hyundai-Kia in third spot (5.05m). Moving down the list, we find BYD in ninth position (2.52m). Its 36% increase in volume compared to 2023 is one of the best performances in 2024. Of the top five manufacturers (which exclude Ford and General Motors), only the Renault Nissan Alliance reported sales growth so far (up to September) in 2024.
We expect BYD and Tesla on a combined basis to account for 40% of total BEV sales in 2024. While Toyota is investing in full-electric vehicle manufacturing capabilities, the company may be left behind in the world of BEV, due to its slow EV adaptation. The company may occupy a much weaker market position in five to ten years from now and a market share placing it outside the top 10 BEV companies, with geographies such as China, South Korea, Germany, France and the US dominating global BEV sales.
Kim Jong Un Wins!
Hmm, when first looking back on this prediction I wrote last year my immediate thought was that we were correct on this one. However, that may not be the case. While Kim Jong is still the Supreme Leader of North Korea, a lack of media coverage suggests that the elections were cancelled.
There were some interesting results from our predictions, but overall, we were pleasantly pleased looking back at our predictions.
Next month, we will be making our predictions for 2025, so watch this space!
Written by the Oracle Investment Management team.
Important information – Oracle Advisory Group makes no representation or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. The information in this document is general information only and is not based on the objectives, financial situation or needs of any particular investor. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek their own professional advice. Past performance is not a reliable indicator of future performance. The information provided in the document is current as the time of publication.