Executive summary
- We are bullish on global risk assets led by Developed Markets (DM), especially the US. We are positive on Asia ex Japan equities (which may potentially outperform 2023’s returns), and fixed income.
- Favourable asset return trends from 2023 can continue this year. The big positive surprise in December 2023 was the US Fed signalling that rate cuts may be feasible in 2024. This should be broadly supportive of risk assets.
- The US’ gains are expected to be driven by stronger productivity, resilient demand, robust liquidity, and easier financial conditions.
- Asia ex Japan equities are expected to be underpinned by firmer earnings growth expectations and rising decoupling from China’s weakness – especially across South Korea, India, and Taiwan.
- We remain negative on China equities – its weak property sector and deflationary pressures are key headwinds. More time is needed for a sustainable recovery here.
- We are positive on fixed income – yields are sufficiently attractive that it can generate potentially favourable income-streams, while providing cushion on growth concerns.
- Geopolitical risks persist, dominated by the Israel-Hamas conflict, which could broaden. However, historical experiences suggests that as adverse reactions to geopolitical shocks ‘wash-out’, risk assets can return to previous trends.
- Amidst the ‘Great Decoupling’, investors should maintain active management to capture alpha opportunities across countries and sectors. Most of the ‘speedbumps’ highlighted in Q423 in this goldilocks environment have receded.