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Investment Monthly

Buckle up
09 August 2024
    Articles
    Download the full reportPDF, 3.92MB

    Key takeaways

    • In stock markets, July’s ‘great rotation’ and broadening out of market leadership has faltered, with volatility hitting small-caps hard. But if recent weakness in macro data is a blip, investor confidence could recover quickly
    • Recession risks support out rationale for defensive positioning. We favour a strategy of ‘playing the yield’, with a preference for high quality fixed income and private credits, as well as defensive parts of the stock market
    • We expect a more volatile phase for investment markets during the second half of 2024. But we continue to see opportunities in many parts of the emerging markets universe markets. Real assets – like real estate and infrastructure – can also be valuable portfolio diversifiers

    Macro outlook

    • Global risk assets saw dramatic moves in late July and early August, with volatility spiking on cooling sentiment towards US technology stocks, followed by investor concerns for the broader US economy and fears of recession
    • Broad range of US data shows the labour market could be cooling faster than policymakers expected. While our base case remains a softish economic landing, recession risks are clearly higher now. Geopolitics and elections also present risks for macro and market stability
    • In terms of global spillovers, Asia’s trade-dependent economies like Taiwan and Korea are most exposed to a US shock. More domestically-oriented Asian economies, such as India and parts of ASEAN, should fare better

    Policy Outlook

    • Disappointing US labour data for July has caused a dramatic repricing of rate expectations, with five Fed cuts now expected this year. Back-to-back 25bp rate cuts for 2024 and further cuts in 2025 to take the funds rate to around 3.50 per cent, seems the minimum the Fed could do
    • In emerging markets, falling inflation and imminent Fed policy easing should pave the way for more countries to cut rates. Supportive policy in China has buoyed confidence but all eyes are on more pro-growth measures
    • On the fiscal front, many Western government are constrained by high debts and deficits and are under pressure to consolidate finances. Further fiscal easing could result in a pick-up in yields

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