Market Updates
(Quarter 2, 2024)

Interim Market Update (April 2024)

 

Diverging Monetary Policies in 2024:

• Following years of synchronized monetary policy, central banks in 2024 are diverging.

• The Fed maintains its intention to ease by mid-year, as indicated by public speeches and off-the-record briefings.

• The FOMC's long-term target rate is gradually increasing, reflecting evolving monetary policy directions.

• China is cautiously easing, whereas the US Fed and European central banks are leaning towards rate cuts.

• The Bank of Japan has slightly raised rates and reduced quantitative easing measures.

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Market Impact:

• Market performance in 2024 is significantly influenced by shifting expectations of Fed rate cuts.

• Initial market expectations for numerous rate cuts have adjusted to align more closely with the Fed's outlook.

• Yields may rise further if the 'neutral' real interest rate rebounds due to factors like defence spending and energy infrastructure.

• Japanese equities, previously overlooked, have seen improvements in balance sheets and return on capital, sparking renewed investor interest.

• China's economic strategy focuses on targeted lending and monetary easing to combat high real interest rates caused by disinflation. China's shrinking current account surplus and subdued investor interest in Chinese assets are notable.

 

Inflation Concerns:

• Policymakers must be cautious and responsive to emerging inflation, drawing lessons from past challenges.

• The Fed appears tolerant of slightly higher inflation during economic growth.

 

Latest Geopolitical Situation and Impact on Markets:

• Ongoing tensions between Iran and Israel and heightened tensions between Russia and Ukraine contribute to geopolitical instability, impacting global financial markets.

• Investors may respond with heightened risk aversion, leading to volatility in asset prices, especially in energy markets and regional securities.

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2024 Outlook:

• The year may experience volatility due to upcoming US and potential UK elections and geopolitical uncertainties.

• Q1 2024 saw strong performance in global equity markets, led by Japan and the US, with thriving sectors like IT and Telecommunications.

• Europe's economic outlook has improved due to lower natural gas prices post-Russia-Ukraine conflict, increased global manufacturing activity, and a rebound in bank lending growth.

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Investment Strategy and Portfolio Management:

• Investors should adopt a selective approach to risk assets, focusing on companies with lower leverage, strong balance sheets and cash flow.

• Expectations include a potential decline in the US dollar and continued strength in gold.

• Factor strategies like 'quality' may prove effective in navigating equities.