Quarterly investment letter | 1st quarter 2024
Here’s our summary of the markets
- The economy faces a slowdown with rising capital costs, yet resilient consumers and government support avert an imminent recession. Markets expect a “soft landing” economic cooling.
- Market sentiment pivoted favourably as the perception of inflation underwent a positive shift.
- Anticipated 2024 Fed rate cuts, a departure from the prior hawkish stance led to a decline in US Treasury yields to 3.9%, signalling an expected 150 basis point reduction.
- Mild inflation data reinforces the belief that the ECB has finished its hiking cycle, increasing the probability of maintaining a restrained policy stance.
- The onshore CSI 300 has fallen by 14.0% in 2023, reflecting weak domestic demand and persistent deflationary pressures in China.
- Conclusion: In light of the absence of an imminent severe recession, our current risk positioning remains unchanged. However, we stand ready to trim our equity allocation should interest rates experience a resurgence. Given current valuation levels and a risk/return perspective, we continue to favor selective credit over equities. This translates into maintaining an overweight position in credit investments, with emphasis on loans and non-cyclical short-term high-yield bonds offering yields in the 8-10% range. Our stance on equities remains neutral, as we lean toward an absolute return approach rather than a traditional relative value mandate in this environment.
We invite you to review our complete 1st quarter 2024 investment letter, which includes a more detailed look at the regional macroeconomic backdrop, market consensus forecasts, and more.
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