Multi Asset Strategy Quarterly - April 2024

Ninety One’s multi-asset team provides high level comment on the macro-economic environment, various thematic issues, the strategy, various asset classes and how they have been, and may be, affected by various factors.

26 Apr 2024

18 minutes

Chapters

01
Market observations
02
Thematic viewpoint
03
Policy review
04
Summary of high conviction asset class views
05
Equities
06
Fixed Income views
07
Currency views
08
Commodity views
01

Market observations

Close-up view of beautiful curved glass building
The Multi Asset team has evolved its outlook and strategy positioning on a better-than-expected economic outlook for the US.

2024: Recession fears fade

Iain Cunningham – Head of Multi-Asset Growth

Our outlook and strategy positioning has evolved over the past quarter as we have revised the probability of US recession lower and the probability of a soft landing higher due to emerging evidence.

A more favourable US outlook

In the US, we believe monetary policy is tight and will continue to progressively feed into the economy through corporate and household refinancings, as they take place. The Federal Reserve (Fed) has however signalled a desire to cut interest rates. If the Fed’s growth and inflation forecasts prove correct, then two to three 0.25% cuts will likely take place later this year. At the same time, fiscal policy in the US has remained loose and continues to support economic growth, while weak areas of the economy have begun to improve recently. This combination of prospective policy loosening, ongoing fiscal support and improvement in manufacturing and real estate has increased the probability of a soft landing in the US economy. We continue to expect growth to moderate through 2024 in aggregate, but we have revised down the probability of recession over the next 12 months.

Figure 1: US credit impulse

Figure 1: US credit impulse

Figure 2: US PMIs

Figure 2: US PMIs

Source: Ninety One, March 2024.

Europe is not as fortunate

In Europe, we believe policy is tight and the lags are shorter than in the US due to less pandemic stimulus, higher levels of floating rate debt and notably less fiscal support. Growth indicators remain weak but appear to be showing some modest signs of improvement at a low base, although there is still prior tightening to feed through. Inflation is falling quickly, and three-month annualised core inflation statistics are currently below the European Central Bank’s (ECB) target. We see an elevated risk of a deflationary period in the eurozone and believe that the ECB is likely to be one of the first major central banks to ease policy this summer.

Figure 3: Euro credit impulse

Figure 3: Euro credit impulse

Figure 4: Euro PMIs

Figure 4: Euro PMIs

Source: Ninety One, December 2023.

China’s recovery remains bumpy

In China, policy appears loose albeit without material easing taking place. Easing measures are however becoming progressively more forceful. The People’s Bank of China’s (PBoC’s) balance sheet has expanded in recent quarters, while additional fiscal measures focused on boosting consumption have been announced. We expect policy makers to continue to ease through various measures as they aim to ensure that a sustained recovery takes hold. Growth metrics remain mixed, and the recovery remains bumpy. We expect it to remain so without more forceful easing measures. Inflation remains weak but base effects should begin to provide more support on a forward-looking basis. We continue to believe that the Chinese economy will experience a more benign outcome than the bearish consensus suggests.

Figure 5: China credit impulse

Figure 5: China credit impulse

Figure 6: China PMIs

Figure 6: China PMIs

Source: Ninety One, March 2024.

Looking ahead

Our central investment roadmap, as discussed above, leaves us somewhat more constructive on the prospects for risk assets, particularly in Asia and the US. In fixed income, portfolio duration declined through the first quarter post a strong rally in government bonds at the end of last year and due to an increase in the probability of a US soft landing. However, we maintain an overweight to defensive duration, particularly in Europe. In currency we maintain a preference for reserve currencies – especially the Japanese yen vs. the euro, where we see scope for policy tightening from the Bank of Japan (BoJ) at a time when the ECB is likely to be easing policy. We also moved longer the US dollar versus Asian and European currencies over the quarter, due to the improved outlook for the US economy versus other regions.

General risks. The value of investments, and any income generated from them, can fall as well as rise. Where charges are taken from capital, this may constrain future growth. Past performance is not a reliable indicator of future results. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Investment objectives and performance targets are subject to change and may not necessarily be achieved, losses may be made. Environmental, social or governance related risk events or factors, if they occur, could cause a negative impact on the value of investments.

Specific risks. Currency exchange: Changes in the relative values of different currencies may adversely affect the value of investments and any related income. Emerging market (inc. China): These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems. Commodity related investment: Commodity prices can be extremely volatile and significant losses may be made. Default: There is a risk that the issuers of fixed income investments (e.g. bonds) may not be able to meet interest payments nor repay the money they have borrowed. The worse the credit quality of the issuer, the greater the risk of default and therefore investment loss. Equity investment: The value of equities (e.g. shares) and equity-related investments may vary according to company profits and future prospects as well as more general market factors. In the event of a company default (e.g. insolvency), the owners of their equity rank last in terms of any financial payment from that company.

Multi-Asset – latest insights
Latest insights

Important Information

This communication is provided for general information only should not be construed as advice.

All the information in is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessary reflect those of Ninety One.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

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