Taking the median view, GFI strategists are underweight only two asset classes – cash and US high yield. But perhaps more revealing is that they are neutral on eight asset classes, something not seen since the end of 2019, when they were putting out their views for 2020.
Caution is the watchword that runs through many of the 2024 outlooks, with ‘exceptional circumstances’ – an unprecedented rate-rising cycle, a tense geopolitical backdrop and the Covid debt backlog, among others – cited as the reason.
That is not to say there is a lack of excitement about the opportunities available, but rather that there are a lot of big calls to make and few clear answers. And having been burned in 2023, many GFIs have not tried to make short-term predictions, choosing instead to favor a longer-term view with a thematic investment approach (demographics, aging population, energy transition, green economy, artificial intelligence, digitalization, production onshoring, etc.) and middle-of-the-road economic forecasts.
And it would appear that this focus on the longer term may already have been vindicated because some of the shorter-term predictions have already come to pass, following the risk asset rally that took place in the last two months of 2023. This underlines not only just how quickly markets can move, but also how hard it is to get one’s timing right.
THE MEDIAN VIEW
Macro backdrop
At a macroeconomic level, the consensus among the GFI reports is fairly strong. While some are calling for a hard landing, most do not expect a broad-based economic collapse. In general, the expectation is for a slowing of the global economy, driven by the impact of higher interest rates, with some expecting a mild recession worldwide. At the same time, there is an expectation that central banks’ pivot to easier policies could set the stage for a risk-assets rally later in the year, but it is possible that the new target rates could be higher than those seen in the previous decade.
Its unexpectedly resilient performance in 2023 means that most expect the US to continue to lead the world economy, while most developed economies (particularly those in Europe) are expected to narrowly avoid a recession.
On the emerging market front, India is expected to take the lead, while many expect China to enter a 'new normal' of lower growth.
Equities
Within equities markets, the big call is what will happen to US stocks, in particular the so-called 'Magnificent Seven' (Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia, Tesla) that drove much of the performance of US indices over the past year. While many missed out on the gains made in 2023, GFIs headed into 2024 quite upbeat about the performance of the technology mega-caps.
But this positivity is tempered by the fact that the US market is much more expensive than it usually is, when compared to other global stock markets. To put it in perspective, the S&P 500 is currently 34% more expensive than the MSCI All Companies Index ex US – a level that is two standard deviations greater than its long-term average.
Price:earnings ratio of the MSCI All Companies World Index vs the S&P 500