Investment Monthly
Playing the yield
05 July 2024
Key takeaways
- We see a chance to ‘play the yield’ and take advantage of high ‘all in’ yields in fixed income and private credits. We like US Treasuries and UK Gilts, as well as carry-earning opportunities in emerging markets
- In stocks, exceptional profits growth in the US, driven by the tech megatrend, is broadening out to other sectors and markets. This represents an opportunity for international stocks to take the lead
- We see a bright spot for emerging and frontier markets. We also think that unloved, defensive real assets – like real estate and infrastructure – have an important role as portfolio diversifiers over the medium term
Macro Outlook
- Economic data remains mixed. A key theme for economies and markets is that growth is broadening out but divergence reigns. As inflation unsticks itself amid cooling labour markets, we expect policymakers to pivot
- Our base case remains a softish economic landing, but there are risks – particularly around geopolitics, elections, and higher-for-longer rates – that could cause asset price volatility and muddy the economic outlook
- Economic momentum in emerging economies is stable, and disinflation has further to go. EM Asia remains the bright spot, with momentum in India still impressive. A delay to the Fed easing cycle remains a risk
Policy Outlook
- Rate expectations have been reset in 2024, but recent signs of economic cooling have revived hopes of near-term easing. We expect two cuts from the Fed in 2024, and similar moves in Europe and the UK before the year-end
- EM countries in Latam and Europe led the global easing cycle, but central banks there are now treading more carefully on rate cuts as they seek to avoid currency volatility amid a strong US dollar
- 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