Executive summary
- We remain bullish on Developed Market equities, led by the US and then Japan, with Europe lagging. Asia ex-Japan equities are achieving strong earnings growth expectations, driven by Taiwan, India, and South Korea. The region can continue to benefit from robust US consumerism and the prospect of greater supply-chain demands from China.
- Equity markets in China can deliver robust returns over our forecast horizon, and the policy stimulus increases our conviction in this area. Over time this may unfold as China’s ‘whatever it takes’ moment to satisfactorily reverse deflation, boost earnings, and lift returns for investors.
- We maintain our positive outlook for fixed income returns as investors can potentially secure capital gains from bonds as the Fed and the ECB cuts rates. Returns from corporate credit can benefit from a ‘soft-landing’ for global growth, robust profitability, and modest default rates.
- Yields are likely to settle at levels that can provide a favourable income-stream, while providing some protection if growth unexpectedly slumps. The risk of the latter is higher, given greater geopolitical flashpoints in the Middle-East (as well as possible shocks from the Russia-Ukraine war or China-Taiwan relations).
- Regardless of which party in the US takes power in 2025 we believe any policy initiatives ultimately passed may prove to be deficit and inflation neutral. We do not foresee our bullish outlook on US equities being derailed, by the actions of politicians, because the core fundamentals driving earnings are very supportive. These include above trend growth, robust productivity, very low real production costs, sustained consumer spending, and the Fed rate cuts.
Our Q4 2024 investment views in a nutshell: hear from our Head of Investment Strategy
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