Quarterly Investment Report – April 2024

Delayed Not Derailed

The strong momentum behind markets continued throughout the first quarter of 2024, with the Global Equity index climbing 14%, taking its annual return to 26%. 

Our report examines the key themes driving markets, risks and opportunities for 2024 and beyond. 

We expect diverging views on the direction of interest rates to present opportunities to increase equity exposure; however, until then, we will remain patient. The outlook continues to support our overweight position in fixed-interest credit strategies, which benefit from high rates and low defaults.

Summary of latest insights

• Growth Momentum – The IMF has raised its global growth forecast for 2024 to 3.2%, citing the U.S. economy and improved trade activity. Global manufacturing is expanding for the first time in 18 months, accompanied by sustained service spending. 

• Policy Challenges – Despite a promising start to the year, the challenges of 2023 persist, with ongoing debates around inflation, rates, growth and valuations. Recent inflation data has delayed rate-cut expectations, placing renewed pressure on central bankers. 

• Offsetting Factors – The U.S. economy is thriving, thanks to low fixed-rate loans from the pandemic and higher income from increased cash rates. Conversely, Australia faces slower growth due to its high exposure to variable interest rates; however, fiscal policies and factors such as limited housing supply and record immigration are offsetting these effects, leading to stubborn inflation data and questions over rate cuts. 

• Long-Term Trends Intact – We believe the recent inflation data does not mark the end of disinflationary trends but suggests that rate cuts are merely delayed, not derailed. Economic activity is anticipated to improve as inflation and interest rates ease.

• Balancing Risk With Opportunity – We view the risk-return ratio for equities as neutral and recommend maintaining allocations close to strategic targets, with a slight underweight in global equities due to valuation pressures. The recent 5% pullback did not alter our view; we would prefer a correction greater than 10%, in line with historical trends. 
• Fixed Interest: Paid To Wait  – We maintain an overweight position in fixed interest through investment-grade credit, which offers more attractive yields than equities and less valuation pressure. This approach ensures steady income as we await further market opportunities.

^{General Advice Warning: Any comments in this communication do not consider your objectives, financial situation or needs. Before acting on any general advice, consider whether it is appropriate for you.}