investment insights
Outlook 2024: Narrow path to a soft landing
The path of interest rates will continue to dominate the economic narrative, despite high-risk geopolitics and a heavy political agenda.
The US economy will slow in 2024. In China, consumer sentiment is stabilising, but policy support remains limited and business investment low. We expect growth to dip below 5% next year.
Overall, while the world economy should see a period of below-trend growth, a major economic accident looks unlikely.
Headline inflation should fall in many developed economies to between 2 and 3% in 2024 – slightly above central bank targets, but low enough to begin cutting rates in the second half.
What does a soft landing mean for markets and portfolios?
Optimism in the market has risen as stocks and bonds have rallied after it indeed looks like inflation has peaked. Corporate earnings even suggest a recovery may lie ahead.
Yet history is hard to ignore. Soft landings are very rare, especially after such aggressive rate hikes.
Tight credit conditions will keep slowing demand, meaning risks to growth, company earnings, and defaults. And with inflation falling fast, might the Fed be too slow to cut rates?
The prices of risk assets don’t seem to reflect these late-cycle risks. So we prefer to keep portfolio risk at strategic asset allocation levels.
So where do we expect the best investment opportunities in 2024?
Firstly, in cash and fixed income, where a peak in rates has opened up a potential for returns that are increasingly competitive with equities.
A soft landing should help support investor risk appetite in equity markets as well.
In FX, the US dollar should remain supported against other developed market currencies.
Of course, markets also face high geopolitical risks in today’s fracturing world.
2024 is also a US presidential election year, with high stakes for global investors as US economic and foreign policies and their impact on US-China relations, grab attention.
Our investment strategy continues to manage these challenges, actively taking advantage of the investment opportunities ahead as they arise.
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