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Our multi-asset investment views - January 2024

We retain our neutral view on equities as although we anticipate a soft landing, we believe this has largely been priced into markets. Find out more about our views on a range of asset classes here.

25/01/2024

Authors

Multi Asset Investments

🟢 Long / positive

🟡 Neutral

🔴 Short / negative

🔼 Up from last month

🔽 Down from last month

Main Asset Classes

🟡 Equities

We remain neutral as although we continue to anticipate a soft landing, we believe that this has largely been priced into markets.

🟡 Government bonds

We remain neutral. Although valuations have turned fair, lower yields would require a further deterioration in the macro data.

🟡 Commodities

Strong supply capacity coupled with modest demand growth mean we remain neutral on the asset class overall. We have turned positive on gold on the anticipation of the Federal Reserve (Fed) cutting rates.

🟡Credit

We have retained our neutral stance as the recent tightening in spreads has left valuations looking expensive.

Equities

🟡US

We have maintained our neutral view, acknowledging that although the macro environment has become more favourable for some sectors, a US slowdown in the medium term is becoming more likely and as valuations are rich.

🟡UK

While the UK economic situation has marginally improved, taming inflation while not harming growth remains a difficult task for the Bank of England.

🟡Europe

Although valuations in Europe are attractive, we remain neutral as we still have concerns about the prospects for European growth.
🟡Japan

In the long-term we acknowledge the positivity of the Japanese structural growth story. However, we believe the yen may continue to rise, which would weigh on the market.

🟡 Global Emerging Markets1

Our neutral view reflects the uncertainty surrounding the weak nature of the recovery in demand for global goods.

🟡 Asia ex-Japan: China

We note that both valuations and technical factors are more attractive than their respective developed market peers. However, we remain neutral as economic uncertainty and the fragile state of the property sector remain.

🟡 EM Asia ex China

We are aware of the potential impact of the Taiwanese elections but remain neutral as the manufacturing recovery may be uneven.

1Global Emerging Markets includes Central and Eastern Europe, Latin America, and Asia.

Government bonds

🟡 US

The market has priced in multiple rate cuts for 2024 despite labour market data remaining strong. We do not think it is soft enough to warrant the number of cuts priced in.
🟡 UK

We maintain a neutral stance despite the recent fall in inflation. This is because we still have concerns about wage growth remaining elevated and supply-side challenges.

🟡 Germany

Although markets have priced in rate cuts from as early as March from the European Central Bank (ECB), inflation remains high and so we remain neutral.

🟡 Japan

We remain neutral. Yields appear unattractive as inflation has been building and we expect the Bank of Japan (BoJ) to push ahead with normalising policy at some stage.

🟢 🔼US inflation linked bonds

We have upgraded to positive as inflation may prove to be stickier than expected as wage growth remains elevated.

🟡 Emerging markets local currency bonds

The Fed’s dovish tone could lead to a weakening of the US dollar which would support EM rates. However, there is still the risk of a hard landing and so we remain neutral.

Investment grade credit

🟡 US

We remain neutral as spreads tightened significantly following the dovish comments from the Federal Open Market Committee (FOMC), leaving spread valuations expensive.

🟡 Europe

The soft-landing scenario has largely been priced in and so we remain neutral as investors in European IG are not compensated adequately for the credit risk taken.

🟡 Emerging markets USD

Although the availability of bonds is still favourable, we maintain a neutral stance as valuations have continued to remain expensive.

High yield bonds (non-investment grade)

🟡🔽US

We have downgraded to neutral to reflect that at current spread levels, valuations are no longer attractive, despite balance sheets remaining strong.

🟡 Europe

Whilst acknowledging the attractive valuations of European high yield debt, default rates and concerns about the economic outlook in Europe leave us neutral.

Commodities

🟡  Energy

We remain neutral as the oil market is balanced, with plenty of supply available to meet an expected slowing in demand.

🟢 🔼 Gold

We have upgraded gold as it provides an attractive risk/return profile in the context of upcoming rate cuts.

🟡 Industrial metals

Although supply-side remains tight, there is no current indication of where any increase in demand will come from.
🟡Agriculture

We remain neutral as improving weather conditions in South America diminish the likelihood of supply-side issues and El Nino does not appear to be having a widespread impact on the market.

Currencies

🟢 🔼US $

We have upgraded the dollar to positive to cover the risk of the Fed delaying the first rate cut and hence disappointing the market's excessive rate cut expectations.

🟢 🔼 £

The UK economy is no longer as stagflationary as it was in 2023. Falling inflation should provide a boost to the currency.

🟡 EU €

Despite the market pricing in a number of rate cuts this year, the ECB has remained relatively hawkish, re-emphasising the inflationary pressures coming from higher wages.

🟡 CNH ¥

We remain neutral given weaker economic growth. However, there are some signs of a potential recovery in Chinese exports which would benefit the currency.

🟡 JPY ¥

Despite signs that the BoJ is considering ending its negative interest rate policy, economic and wage growth data have disappointed, and so we expect the BoJ to proceed with caution.

🔴 🔽Swiss franc ₣

Swiss core and headline inflation are both below the Swiss National Bank’s (SNB) target of 2%. This would suggest that the SNB is more likely to cut rates.

 

Source: Schroders, January 2024. The views for equities, government bonds and commodities are based on return relative to cash in local currency. The views for corporate bonds and high yield are based on credit spreads (i.e., duration-hedged). The views for currencies are relative to the US dollar, apart from the US dollar which is relative to a trade-weighted basket.


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