Our multi-asset investment views - November 2024
Following Donald Trump’s election victory we have extended our positive view on US equities to include smaller companies. And, while improved valuations prompted us to upgrade US bonds, we've stopped at neutral given the inflationary risks ahead.
Autheurs
🟢 Long / positive
🟡 Neutral
🔴 Short / negative
🔼 Up from last month
🔽 Down from last month
Main Asset Classes
🟢Equities
With election uncertainty behind us, we remain positive on equities. Economic activity remains resilient, and supportive fiscal and monetary policy means the path of least resistance for equities is higher.
🟡🔼 Government bonds
We have moved to neutral on government bonds given valuations are now flagging as cheap. That said, we remain on the sidelines for now given the potential inflationary impact of expansionary fiscal policies.
🟡Commodities
We remain neutral on broad commodities, where the market outlook remains muted and Chinese demand subdued. That said, we have re-upgraded gold to positive.
🟢Credit
We retain our positive view on credit, focusing on Europe where valuations are far less extreme relative to the US.
Equities
🟢US
We are extending our positive view on US equities to include US small caps and financials. Supportive policies such as tax cuts have shifted the sentiment towards smaller companies, whilst expectations of deregulation should support financials.
🟡UK
We remain neutral on the UK where there is no clear catalyst to drive UK equities up from their current levels.
🟡Europe ex UK
We remain neutral on Europe, where the outlook for growth remains uninspiring and there will be high exposure to Trump’s expected tariff policies. That said, the impact of tariffs is likely to be deflationary for Europe and increase scope for further rate cuts.
🟡Japan
We maintain our neutral stance. Growth is flat, and the country will have to contend with any tariffs imposed by the US. Meanwhile, the government remains fragile and the Bank of Japan (BoJ) continues with its task of normalising monetary policy. Central banks use monetary policy to manage economies through a range of interventions, including the management of short-term interest rates.
🟡🔽Global Emerging Markets1
We have downgraded EM to neutral. The catalyst for the recent rally was policy easing measures from the People’s Bank of China, which have since been lacklustre.
🟡🔽Asia ex-Japan: China
We have downgraded Chinese equities to neutral. Trump has stacked his cabinet with “China hawks”, signalling a tough stance. Fiscal policy announcements, which were postponed until the outcome of the US election, have disappointed. Fiscal policy is used by governments to manage economies, including through changing tax and spending policies.
🟡EM Asia ex China
We remain neutral as we expect China to evaluate the scale of tariffs imposed by the US before announcing further fiscal stimulus, which may then support the broader region.
1Global Emerging Markets includes Central and Eastern Europe, Latin America, and Asia.
Government bonds
🟡🔼 US
We have moved to neutral on US government bonds where our fair value model is now flagging yields as being very cheap. However, we believe this pricing is a result of a regime shift, where the market expectation is now for higher growth, higher inflation, and higher yields.
🟡 UK
UK gilt yields have been volatile. The market remains conflicted, with additional borrowing announced in the Autumn Budget offset by an additional 25 basis point interest rate cut announced earlier this month by the Monetary Policy Committee.
🟡 Europe
Inflation in the euro area ticked up slightly last month but remains at target. With growth continuing to disappoint, the European Central Bank remains well placed to deliver more rate cuts. For now, we remain neutral but keep our regional bias to France and Italy.
🟡 Japan
We remain neutral. The political power shift may put downward pressure on expectations of rate hikes. However, we expect the effect of a weakening yen to dominate, and that the BoJ will implement a rate cut in January if not December.
🟡 US inflation-linked bonds (TIPS)
Whilst we expect the US market to move in a reflationary direction, we remain neutral given the recent surge in US break evens. These rates represent the difference between yields on nominal US Treasury bonds and US Treasury Inflation-Protected Securities (TIPS) of the same maturity and reflect the market's expectations of future inflation.
🟡 Emerging market local currency bonds
We remain neutral on EM local bonds. The carry (where investors borrow at a lower rate to invest in an asset that provides a higher rate of return) remains attractive but is being challenged by a strengthening US dollar.
Investment grade credit
🔴🔽 US
We have downgraded our view. Whilst absolute yields are attractive, credit spreads are at their lowest levels for the last 20 years. US IG is particularly exposed to higher yields and interest rate volatility, given its longer duration. The credit spread is the margin that a company issuing a bond has to pay an investor in excess of yields on government bonds and is a measure of how risky the market perceives the borrower to be.
🟡 Europe
We remain neutral. EU IG is trading at a significant spread premium over the US. Whilst growth risks are more prominent, the tailwind of lower rates should be supportive.
🟡Emerging markets USD
We remain neutral. We recognise there is greater value to be unlocked in the sector versus developed markets but continue to recognise the potential impact of higher US yields.
High yield bonds (non-investment grade)
🟡US
We remain neutral as, similar to US IG, valuations are at extremely expensive levels.
🟢Europe
We remain positive on European HY, where valuations are far less stretched. The asset class offers an attractive yield and stands to benefit from a further tightening of spreads. Low growth, moderating inflation, and lower rates remain supportive.
Commodities
🟡 Energy
The market remains well balanced. Demand growth in 2025 is expected to be met by non-OPEC supply growth. OPEC has delayed planned increases in supply for three months in a row; a move we now think would push the market in a bearish direction.
🟢🔼 Gold
We have returned to positive. We initially expected a rotation out of gold into Chinese equities following policy easing measures from China. Whilst this played out at the margin, central bank and exchange traded fund demand for the precious metal remains buoyant.
🟡Industrial metals
The recent fiscal announcement from China focused on restructuring local government debt as opposed to demand-side stimulus. With weak manufacturing data, there is no clear catalyst to boost demand for industrial metals.
🟡Agriculture
The supply side across most crops remains strong, with little to no signal of any disruptions in the near term.
Currencies
🟢🔼US $
With multiple tailwinds, including tariffs, further divergence in monetary policy, and equity inflows to the US, we have moved positive on the US dollar.
🔴UK £
For now, we remain negative. Rates have come down and we do not see an immediate catalyst to push sterling higher relative to the US dollar. That said, we are monitoring the actions of the government and Bank of England closely, where both sides seek to maintain credibility as paranoia around a repeat of the gilts crisis looms.
🔴 EU €
We maintain our negative stance, where a deteriorating growth outlook, compounded with high exposure to US tariffs is likely to result in faster rate cuts.
🔴🔽CNH ¥
We have downgraded the renminbi to negative, where we expect both stimulus and currency depreciation will be necessary to negate the downtrend in growth and impact of tariffs.
🟡JPY ¥
It is unclear how far the BoJ will go with rate cuts at upcoming monetary policy meetings. Political uncertainty also makes the path to normalisation of monetary policy less clear. For now, we prefer to remain neutral.
🔴Swiss franc ₣
With inflation at its lowest level in over three years, it is expected the Swiss National Bank will continue to cut interest rates.
Source: Schroders, November 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.
Subscribe to our Insights
Visit our preference center, where you can choose which Schroders Insights you would like to receive.
Autheurs
Topics