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the keys to making decisions about different assets


February 28, 2024 – 11:48

Variable and fixed income, credits, currencies, emerging markets and a 2024 that looks encouraging for some sectors of the global economy. Factors to take into account when rebuilding portfolios or making investment decisions.

Global emerging markets include Central and Eastern Europe, Latin America and Asia.

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This year is expected to be characterized by substantial changes and notable transitions. After a 2023 in which the recovery of stock values ​​was consolidated, also supported by the positive yield of sovereign bonds, the coming months present the challenge of maintaining a path of real profits for investorsfacing an inflationary environment that is positioned as the main obstacle to profitability.

In that context, Schroders he released his report inverter traffic light in which the vision of global equities improves “to positive”. The change is based on the fact that growth “continues to surprise on the rise”.

Thus, the inverter traffic light will be organized by color, being green, long/positive, yellow, neutral and red, short/negative. These drivers could be of great help when rebuilding portfolios for the upcoming month or for making decisions.

Major asset classes

  • Stocks (green and up): Schroders rose to positive in equities, since growth continues to surprise on the upside. “We have implemented this vision across global equities to take advantage of cheaper valuations and growth opportunities outside the United States.”
  • State Bonds (yellow): Maintains the “neutral” position. Although valuations have become more attractive as markets reprice rate expectations, “we prefer to proceed with caution, as a hard landing resulting from resilient growth, and therefore higher rates, remains a factor.” of risk,” he warns.
  • Commodities (yellow): Supply continues to meet demand in raw materials markets, despite geopolitical tensions in the Middle East. Therefore, “we remain neutral, but maintain our positive outlook on gold, which should benefit from declining real rates.”
  • Credit (yellow): ““We remain neutral on credit.” Valuations are extremely strained, but supportive supply and demand dynamics, allied with solid fundamentals, justify the position.

Actions

  • United States (green and rising): Schroders upgraded the sentiment to “positive” as the US labor market remains buoyant, consumer confidence continues to grow and core inflation is in line with the Federal Reserve’s (Fed) target.
  • United Kingdom (yellow): “We remain neutral on the UK,” as although inflation has declined, it remains above the Bank of England’s (BoE) target. and growth prospects remain weak.
  • Europe (green and rising): “We have turned positive in Europe,” which has been going through its own cycle and where manufacturing data shows signs of recovery from its 2023 lows.
  • Japan (green and rising): “We have upgraded our view on Japan to positive given a strong fundamental outlook, including strong upward earnings revisions. Although valuations are approaching 1989 highs, current valuations are much less stretched.
  • Global emerging markets (yellow): “We remain neutral,” as, despite signs of recovery in the manufacturing sector, we expect this recovery to be uneven. Added to this is a weak outlook on China.
  • Asia ex-Japan: China (yellow): In China, growth prospects remain weak, due to the fragility of the real estate sector and the lack of significant stimulus from the government. People’s Bank of China. “We maintain our neutral view, given that valuations are relatively cheap and in case of a rebound in the global goods cycle,” the document adds.
  • EM Asia ex-China (green and rising): “We are positive on Taiwan and Korea“, as they should be the first to benefit from any manufacturing recovery and increased demand for AI and semiconductors.

Global emerging markets include Central and Eastern Europe, Latin America and Asia.

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State bonus

  • United States (yellow): Although investors have reduced their expectations about when the Fed will start cutting rates, we prefer to remain neutral, as the improvement in valuations is not yet enough to offset the negative carry.
  • United Kingdom (yellow): “We remain neutral, although the UK labor market has eased, and we recognize that valuations are more attractive given expectations of less aggressive rates, high wages and expectations of tax cuts remain a concern.
  • Germany (yellow): Despite the fall in inflation, wage pressures remain high. “German bonds could act as a hedge against a volatile 2024 in the eurozone,”but for now we prefer to remain neutral“.
  • Japan (yellow): “We remain neutral.” Inflation appears to be in line with the Bank of Japan’s target and we await further clarity on any departure from its negative interest rate policy.
  • US Inflation-Linked Bonds (Green): “We remain positive,” as these bonds offer coverage cagainst the risk of a spike in inflation at the end of the year, when favorable base effects diminish.
  • Emerging markets local currency bonds (yellow): A soft landing should support the weakness of the US dollar and therefore of emerging market rates. However, given the US data and the risk of a hard landing, we prefer to remain neutral for now.

Investment grade credit

  • United States (yellow): “We maintain our neutral stance as valuations are extremely high and US investment grade struggles to compete with cash. However, we recognize that the issuance remains in strong demand as investors seek quality long-term returns. term.
  • Europe (yellow): “Valuations for European investment grade are relatively fair.” Although Schroders recognizes solid fundamentals, such as a constant level of quality in the index and reasonable coverage of the companies’ interests, we prefer to remain neutral.
  • USD emerging markets (yellow): There is wide variation in spreads between emerging market sovereign bonds, but valuations are attractive. Companies show less variation in spreads, but unattractive valuations. “We remain neutral“.

High Yield Bonds (Non-Investment Grade)

  • United States (yellow): ““We remain neutral” as US high yield bond valuations remain extremely strained.
  • Europe (yellow): The ECB’s dovish comments sparked a sharp rally in the EU HY. The remaining value is concentrated in stations in difficulty, which means that “we remain neutral“.

Basic products

  • Energy (yellow): “We remain neutral as, despite geopolitical developments in the Middle East, OPEC+ supply cuts have not yet materialized. We expect strong supply growth from non-OPEC countries in 2024.
  • Green gold): “We remain bullish on gold as we expect some normalization of real rates later this year.” It also provides an attractive hedge against a spike in inflation. Prices are also supported by buoyant Chinese domestic demand.
  • Industrial metals (yellow): ““Supply remains tight,” with further copper production cuts this year. However, resilient Chinese demand, driven by property completions and renewables, is likely to ease, while a rise in LME shares illustrate the weakness of demand outside China.
  • Agriculture (yellow): “Cereals are trending downwards following increased yield expectations,” while soft and Livestock have rebounded as adverse weather conditions limit supply. Therefore, we stay out of it.

Coins

  • US dollar (green): ““We remain positive on the US dollar.” as a positive carry hedge against the risk that the Fed may not be able to cut rates as quickly or to the extent the market expects.
  • United Kingdom £ (green): ““We remain positive on the pound.” Despite the recent declines, the Inflation remains above the Bank of England’s 2% targeta soft landing globally should support more cyclical currencies, such as the pound.
  • Euro (yellow): In Europe, manufacturing data has rebounded from its summer lows, and it appears that the worst stages of the business cycle may be behind us. However, for now, “we remain neutral“.
  • CNH ¥ (yellow): ““We remain neutral” given the weak economic growth prospects. However, we recognize the risk of potential CNY outperformance in the event of a further rebound in the global merchandise cycle.
  • JPY ¥ (yellow): ““We remain neutral,” as the Bank of Japan has not yet confirmed the exit from its yield curve control policy and is currently there is no other domestic catalyst supporting yen appreciation.
  • Swiss franc (red): Inflation remains below the Swiss National Bank’s (SNB) 2% target, suggesting that “a rate cut remains a possibility.”





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