investment insights
2024, a pivotal year for investors
The global economy is on a path to normalisation.
Modest growth, falling inflation and the prospect of interest rate cuts isn’t a recipe for a boom, but the slowdown looks manageable.
In the US and eurozone, activity in rate-sensitive sectors is no longer deteriorating. Job markets are better balanced.
Disinflation is paving the way for the first rate cuts by the Federal Reserve and the European Central Bank in spring.
But the outlook is not without risks. Geopolitics add a loud note of caution.
For now, there’s no indication of a second wave of inflation in oil prices or shipping costs, but these measures need careful watching.
2024 is also a year of key elections, notably in the UK, eurozone and crucially, the US.
Meanwhile, we expect China to focus on domestic economic challenges, including slowing growth, deflation and property market pressures.
So what does it all mean for our investment strategy?
Even with monetary easing ahead, an environment of higher interest rates than pre-pandemic has raised expected returns for fixed income and rate-sensitive assets.
We have revised our strategic asset allocation to reflect the fact that portfolios may now need less risk to achieve their investment goals. This also simplifies our approach – we focus on core holdings, with a tilt towards US assets and quality across asset classes.
Tactically, we keep a prudent investment strategy.
Markets are facing challenging conditions. However, short-term volatility could offer opportunities for adding risk.
In equities, we keep exposures at strategic levels.
Globally, investor sentiment is bullish and valuations more demanding, but we see stock market gains this year, driven by improving margins and earnings growth.
US stocks’ market leadership and valuation premium can continue given macroeconomic and sector advantages.
In fixed income, we focus on government bonds, US Treasuries in particular, investment grade credit (where we have recently also taken profits), and the higher-rated segments of high yield.
In currencies, the US dollar should be supported by US growth and yield advantages.
We also like the Swiss franc but expect some near-term weakness after a stellar performance.
We will continue to reinforce our new strategic asset allocation with tactical decisions to benefit from the opportunities that will surely arise this year.
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It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a marketing communication.
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