Investment Monthly
China rallies
07 October 2024
Key takeaways
- If delivered, the soft landing should catalyse the market rotation – boosting emerging markets, laggard sectors, small-caps, and the value factor
- Investors should remain cautious of a more volatile market environment amid global economic cooling, election uncertainty and geopolitical risks
- In fixed income, we see a strong case for a ‘structural steepening’ of the yield curve. Private credits, real assets, and hedge funds remain attractive
- EMs should continue to benefit from a weaker US dollar. We prefer Asia stocks and credits, and local-currency EM debt
Macro Outlook
- A combination of falling inflation and cooling growth continue to align with our base case scenario of a soft landing for the economy
- With the Fed kicking off its policy easing cycle, the way has cleared for other global central banks to pursue rate cuts
- Global growth remains ‘multi-speed’. New policy support in China gives confidence that policymakers are committed to achieving a target of ~5% real GDP growth this year
- Stock market performance and profit growth expectations continue to broaden out, with a ‘great rotation’ of leadership across sectors and regions
Policy Outlook
- A comprehensive set of Politburo-endorsed policy measures in China signalled strong intent to shore up confidence, the economy, and markets
- A 50bp rate cut from the US Fed reflected its judgment that upside risks to inflation have moderated while downside risks to employment have risen
- US fiscal policy will be a mild drag on growth in H2 and into 2025, but much will depend on the election result in November
- The Bank of Japan is expected to take a cautious approach to further rate hikes as it progresses towards policy normalisation without unsettling markets