A raft of wealth management firms are setting out their asset allocation positions and financial and economic forecasts for the year, with many talking about the uncertain financial environment, prospects of slow growth and likely peak and possible cut to some interest rates later in the year. 

The investment strategy group (ISG) of Goldman Sachs expects global growth in 2024 to stand at 2.9 per cent near trend levels, with some dispersion among regions.

In the US, the investment bank and wealth manager expects growth of 1.9 per cent, 0.5 per cent in the UK and eurozone, 0.9 per cent in Japan, 4.8 per cent in China and 6.1 per cent in India.

The ISG thinks that most major central banks in developed economies, except for Japan, will start reducing policy rates in 2024, with the US starting in March, followed by the eurozone in April and the UK in May. In emerging markets, China and Brazil will continue easing monetary policy, while India and Russia may ease modestly in the second half of 2024.

The group highlighted how China’s economy remains unbalanced, consumption is too low and investment is too high. It forecasts that China’s over investment on infrastructure, declining exports as a share of GDP, and its deteriorating property sector will slow the country’s GDP growth to an average of 3.4 per cent over the next 10 years and to 2.3 per cent by 2033. The regulatory crackdown has introduced uncertainty and negatively impacted investor confidence, the group added.

The group has also lowered its risk of recession in the US for the year ahead to 30 per cent. This is above the unconditional probability of a recession of 18 per cent but substantially lower than current consensus.

There is a long list this year, it said, including an escalation of the Israel-Hamas war, continued US-China tensions, more ballistic missile testing by North Korea, a growing partnership between Iran and Russia, and continued nuclear enrichment in Iran. “Only a handful of global elections this year will impact economies and markets, including that of Taiwan and the US,” the firm said at a media briefing.

A raft of wealth management firms are setting out their asset allocation positions and financial and economic forecasts for the year, with many talking about the uncertain financial environment, prospects of slow growth and likely peak and possible cut to some interest rates later in the year. 

Portfolio allocation
The firm highlighted how US equities continued their outperformance in 2023, returning 26 per cent, compared with 19 per cent for non-US developed equities, 10 per cent for emerging markets, and -11 per cent for Chinese equities.

Although US equities are deemed to be expensive, both on an absolute basis and relative to non-US equities, the firm recommends clients to stay invested in US equities at their customised strategic asset allocation weight and not shift towards bonds, cash or non-US equities.

Nevertheless, it sees lower interest rates in 2024 supporting fixed income, and prefers duration risk over credit risk, reflected in higher base case returns for 10-year sovereign bonds than credit indices.

The preference for quality bonds is shared: UK wealth manager Brown Shipley, Paris-based asset manager Carmignac, HSBC Global Private Banking, UBS Global Wealth Management see value in quality bonds in 2024. See more coverage here.

Goldman Sachs thinks the US is best positioned to withstand changes in globalisation trends, while China, the world’s second-largest economy, is most likely to be negatively impacted compared with most developed and emerging market countries. Hence, it recommends maintaining a strategic overweight to US equities.

The firm believes that the cheapness of other equity markets does not warrant a tactical shift away from US equities towards non-US equities, because it thinks US companies have a much stronger earnings' growth potential. It is overweight in US equities by 11 percentage points relative to the MSCI All County World Index, and significantly underweight emerging markets.

Shifting to a different player, Singapore-based Chetan Sehgal at Franklin Templeton is nevertheless optimistic about prospects for emerging markets, compared with their developed world competitors, driven by digitalisation, high tech firms and a strong focus on renewable energy. See more here.