Asset Allocation Key Themes 2024 – Risky assets are not out of the woods
We think risk assets will underperform in 2024. We map out the implications of our key 2024 global macro themes for asset allocation.
This research report expands on these key themes:
- Risks to growth are skewed to the downside. Our global growth forecasts are below consensus as we believe the peak effects of policy tightening are ahead. This supports our cautious allocations as we expect the EPS recovery to disappoint and balance sheets to come under pressure. We are underweight in high-yield (HY) credit and equities.
- Inflation trends will diverge. The eurozone will continue to experience stronger disinflation than elsewhere, fuelling our bull steepening view for core European government bonds. However, lower inflation should help pave the way for a H2 economic growth recovery and lead to rerating of eurozone small cap stocks. The term premium will continue to ease and we see US long-term real yields trading at 1%, with a range of 3.5%-4% for the nominal 10y UST by year-end.
- There are some key pockets of opportunity. We see merits in being bullish yen on cyclical and valuation grounds, but yen bulls will have to wait until H2 2024 when the global rate cycle finally peaks and the soft-landing narrative is more forcefully challenged. We think unhedged foreign investors will see decent returns in Japanese equities in 2024.
- We think the outperformance of Euro vs US HY credit will continue in 2024. A more supportive European Central Bank (ECB) next year, a rapidly narrowing growth differential with the US, and attractive valuations underpin the allure of Euro credit (relative to US) despite a larger refinancing wall in 2024.
An overweight stance on risk assets | Beyond the Headlines
Our Cross Asset framework has improved in January and now signals an overweight stance on risk assets vs safe assets. In this week’s Beyond the Headlines, Javier Corominas, Director of Global Macro Strategy, breaks down our Global Asset Allocation for 2024 at the Inaugural Global Economic Outlook Conference in London.Find Out More
Cross Asset: Sticking with our risk on tilt as the growth outlook improves
We remain modestly risk-on as our above-consensus view on US growth this year still favours risk assets over bonds.Find Out More
Quick Take – Q4 results highlight renewed profit margin pressure
The latest results point to a broad-based decline in US profit margins in Q4, reversing a recovery in Q3. We think margins will remain under pressure this year, resulting in further EPS disappointment despite an economic soft landing and limiting the upside for equities.Find Out More