Our multi-asset investment views - October 2024
We have upgraded our views on credit to positive, specifically in European high yield. Find out more about our views on a range of asset classes here.
Autheurs
🟢 Long / positive
🟡 Neutral
🔴 Short / negative
🔼 Up from last month
🔽 Down from last month
Main Asset Classes
🟢Equities
We remain positive on equities. We continue to view the backdrop of policy easing and an expected soft landing as supportive for the asset class.
🔴 Government bonds
We maintain our negative view as we believe the market is still overly optimistic on US interest rate expectations. However, valuations are no longer expensive.
🟡Commodities
We remain neutral on commodities given the healthy state of supplies in several sectors.
🟢🔼Credit
We have upgraded our views to positive, specifically in European high yield.
Equities
🟢US
Strong US payroll and economic data, combined with a stimulative stance from the Federal Reserve (Fed), support our view that the equity market has scope to rise further.
🟡🔽UK
We have downgraded to neutral as valuations are looking less attractive, and there is no clear catalyst to drive UK equities up from their current levels.
🟡Europe ex UK
We remain neutral as although forward looking economic data has been weak, inflation has eased giving the European Central Bank (ECB) scope to cut rates in the coming months.
🟡Japan
We remain neutral as political volatility is expected to overshadow positive fundamentals, leaving investors on the sidelines.
🟢🔼Global Emerging Markets1
We have upgraded to positive. EM equities offer attractive valuations and strong earnings and may now have found their catalyst for a continuation of the current rally.
🟢🔼Asia ex-Japan: China
We have upgraded to positive as the Chinese authorities are focused on providing monetary stimulus and supporting the equity market. However, to really change our expectations for Chinese growth, we would need to see more fiscal stimulus.
🟡EM Asia ex China
We maintain a neutral stance. While the region stands to benefit from China’s new stimulus measures, we prefer to gain exposure to China directly.
1Global Emerging Markets includes Central and Eastern Europe, Latin America, and Asia.
Government bonds
🔴 US
We maintain our negative view as although yields have rebounded from their recent low levels, valuations are still moderately expensive.
🟡 UK
We remain neutral despite the fall in inflation and the Monetary Policy Committee's decision to lower interest rates in August.
🟡 Germany
Growth data in Europe has been weak and recent falls in inflation will allow the ECB to deliver rate cuts. Although our overall view is neutral, regionally we prefer France and Italy.
🟡 Japan
Although yields on a risk-adjusted basis are attractive, given that the market is expecting two rate hikes by the end of 2024 as headline inflation is rising, we remain neutral.
🟡 US inflation linked bonds
We remain neutral as we expect inflationary pressures to continue to ease despite growth being positive and robust consumer spending.
🟡 Emerging markets local currency bonds
Although EM local bonds have attractive carry (where investors borrow at a lower rate to invest in an asset that provides a higher rate of return) and valuations, we remain neutral as the wider spreads are mainly associated with a small number of troubled issuers.
Investment grade credit
🟡 US
US credit was supported by the surprise 50bps interest rate cut from the Fed. However, the absolute level of carry (where investors borrow at a lower rate to invest in an asset that provides a higher rate of return) is not sufficient to offset expensive valuations in US IG, leading us to stay neutral.
🟡 Europe
European inflation is easing, low levels of growth and the prospect of rate cuts provide a good backdrop for credit. We remain neutral as European HY spreads are more attractive.
🟡Emerging markets USD
We remain neutral as we see little benefit to EM corporate bonds from the positive developments in China given already extremely tight valuations.
High yield bonds (non-investment grade)
🟡US
Similar to US IG, the sector benefited from the surprise interest rate cut. However, spreads have already fallen sharply, leaving little room for further tightening.
🟢🔼Europe
We have upgraded to positive as the European high yield sector offers the best opportunity in credit markets.
Commodities
🟡 Energy
The energy market continues to have ample supply. While demand remains muted, it is unlikely that economic stimulus from China will materially change demand levels.
🟡🔽 Gold
We have turned neutral following this year’s price surge. The outlook for gold appears more subdued, with demand from Chinese households expected to wane as Chinese equities regain their popularity.
🟡Industrial metals
We remain neutral as the recent Chinese stimulus is not expected to have a significant impact on base metal prices and global supply and demand appear to be broadly balanced.
🟡Agriculture
Although adverse weather conditions in Brazil and Argentina have prompted a rise in wheat prices, supplies overall remain sufficient, thereby limiting any further upside.
Currencies
🟡US $
With the Fed starting to cut interest rates, we remain neutral.
🔴🔽UK £
We have downgraded to negative as although market pricing for the Bank of England remains cautious compared to other central banks, optimism in the UK has peaked following the general election and no clear catalyst now exists to push the currency higher.
🔴🔽 EU €
We have downgraded our view on the euro as weak inflation and expected interest rate cuts will make the currency less attractive than other major currencies.
🟡 CNH ¥
Despite recent stimulus measures from the Chinese authorities, we would need to see more fiscal stimulus to change our neutral view.
🟡🔽JPY ¥
We have downgraded to neutral while we wait for a clearer policy direction from Japan’s new prime minister on monetary and fiscal policy.
🔴Swiss franc ₣
We maintain our negative view as we expect the weak inflation data to lead to further interest rate cuts from the Swiss National Bank.
Source: Schroders, October 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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