Research Briefing | Feb 1, 2024

Cross-Asset framework supports risk-on shift

We move to a modest overweight on risk assets this month as we have become more optimistic on the global cycle. Our forecast for US growth this year is now clearly above consensus, and we see the risk balance for our China growth forecast as tilted to the upside.

What you will learn:

  • Our Cross-Asset framework supports this shift in view. Relative valuations are no longer stretched following the decline in real yields, and positive risk scores from our macro and newly-launched EPS momentum frameworks suggest risk assets will outperform.
  • We promote high-yield credit to overweight given its low duration, attractive carry and our constructive view on the corporate default cycle. We also upgrade REITs as valuations remain significantly below their 2021 peak and we expect them to gradually rerate as US financial conditions continue to improve.
  • We add to our equity allocations but remain underweight in DM where investor sentiment looks stretched and could be vulnerable to a reversal in the near term. We see better value in EM equities where there are signs of a nascent EPS recovery.
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