Investment Monthly
Higher for a bit longer
06 May 2024
Key takeaways
- We continue to expect a ‘softish’ landing, but resilient growth and potentially tighter-for-longer policy creates an uncertain outlook. With valuations stretched in places, we take a cautious view on western risk assets
- That means putting cash to work in portfolios, with a ‘defensive growth’ positioning that includes selective exposures to fixed income, risk assets, and private markets
- We see opportunities outside the US, especially in the EM and Frontier space. We also see a key portfolio role for alternatives (especially private credit, hedge funds, infrastructure, and real estate)
Macro Outlook
- Global growth trends remain resilient despite restrictive policy. The last mile of disinflation has not been straightforward, but we expect the trend to re-establish itself later this year
- The economy is in the final approach to the soft landing. But further ahead is a ‘danger zone’ of risks to navigate, including elections, geopolitics, climate change and questions over the outlook for longer-term growth
- The big story in emerging markets continues to be one of divergence. Growth in India continues to impress, while there is more evidence that Chinese policy support is working despite lingering growth headwinds
Policy Outlook
- Resilient growth has seen markets continue to price-out expected Fed policy easing this year. We expect that central banks in Europe and the UK will be able to cut rates this summer, ahead of the Fed
- The DM fiscal policy stance is expected to act as a slight drag on growth in 2024. But public deficits are likely to remain large, with no expected return to the fiscal conservatism of the 2010s
- While EM countries in Latam and Europe have led the global easing cycle, the near-term path could yet be choppy, particularly given the strong US dollar and resilient US growth data keeping Fed policy tighter for longer