Investment Strategy - 1st Quarter 2024
Daniel Varela, CIO, shares with you our investment convictions for the first quarter of 2024.
How is the global economy faring ?
The cycle of interest rate hikes is unprecedented, particularly in its magnitude and synchronous nature on a global scale. The fact that such a cycle has unfolded without significant economic damage or financial crisis is reassuring. This is likely attributed to the reduction in private sector debt since the 2008 crisis.
Despite a highly tense geopolitical environment, economic activity has proven surprisingly resilient, especially in the United States. However, while a recession has been avoided, the slowdown in economic conditions is undeniable, particularly in Europe.
Fortunately, the central banks have achieved their objective. Inflation is gradually returning to the 2% target everywhere, and the risk of an inflationary spiral fueled by wage increases is diminishing.
Can we expect more accommodative central banks ?
This noticeable decline in inflation will allow for a relaxation of monetary policies. The first interest rate cuts are expected by mid-2024 in the United States, as well as in Europe and Switzerland.
These rate cuts will promote a revival of activity, especially in the industry and construction sectors, both of which have suffered greatly in the past year.
The current economic downturn should, therefore, lead to an upturn in 2024. And the return of growth will undoubtedly be confirmed in 2025 in both developed and emerging markets.
What are the prospects for financial markets ?
Periods of declining interest rates usually benefit most financial assets, with bonds and equities leading the way. This is especially true when valuations are generally reasonable. Therefore, the outlook for returns on major asset classes is positive for the coming year.
However, 2023 ended on a high note in financial markets, suggesting that the good news is already partially priced in. A period of consolidation would help offset the current excess of optimism and pave the way for a more sustainable increase.
In this context, we are making a slight reduction in the equity portion of our asset allocation in favor of liquidity. This decision is tactical and temporary, awaiting better entry points in the markets.
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Watch Daniel Varela's analysis in this video:
