European investment house Mediolanum International Funds Limited has just released its mid-year global market outlook for 2024, analysing the economic landscape and investment opportunities for the year ahead.

Ireland-based Mediolanum International Funds Limited (MIFL) anticipates a “soft landing” for economies, with stocks set to rally, as global markets benefit from a lower inflationary environment in the second half of the year. However, the investment house believes that the higher-for-longer interest rate environment has implications for both equity and bond markets, affecting growth companies and bond yield.

Despite the rate raising cycle of 2023, MIFL highlighted how economies have shown resilience, leading to an equity rally and moderate volatility in bond markets. However, a mixture of conflict, the US late-cycle economy, high valuations and political uncertainty ahead, especially around the US elections, mean that investors should consider a balanced approach to their asset allocation, MIFL said in a note.

The investment house believes that emerging markets, led by India and China, will drive global growth in 2024, presenting attractive investment opportunities.

The global economy is forecasted to maintain a growth rate of 2.6 per cent this year, with emerging markets, particularly India and China, leading the way. “This improved growth is positive news for equity investors, as ultimately equity returns are highly correlated to economic growth over the long term,” the firm said in a statement.

Growth companies in the tech sector lead the equity rally, navigating the higher interest rate environment. “However there are doubts that this will continue and is a reason to diversify exposure to reduce risk,” the firm added.

While more volatility is expected for equities in the second half of 2024, if central banks can engineer a “soft landing” then MIFL believes it will set investors up for better opportunities. An ailing Europe is earlier in the economic cycle than the US, which has enjoyed strong growth over the past year but may be beginning to show signs of tiredness, with the difference in their respective growth rates likely to narrow, MIFL continued.

"With interest rates likely to stay higher for longer and emerging markets like India and China driving global growth, investors face both opportunities and challenges. As we approach the US election in November, we anticipate heightened uncertainty and increased market volatility, driven by a mix of geopolitical conflict, the late-cycle US economy, and high valuations,” Brian O’Reilly at MIFL said. “While economic growth and corporate profitability are in relatively good health, investors should focus on building portfolios around a strong core, adding risk selectively based on personal goals and circumstances,” he added.

“We see opportunities in longer-term bonds, a diversified approach to equities, and sustainable investment, yet the unpredictable political landscape requires careful navigation,” O’Reilly continued.

MIFL highlighted that emerging markets are already cutting interest rates and improved governance and transparency in some emerging markets makes bonds compelling. “The sustainability transition, particularly in real estate, electric vehicles, and green bonds, continues to offer promising investment avenues,” MIFL added. The investment house recently launched two new multi-manager funds, adding to its ESG product range. See more commentary here.

O’Reilly believes that informed, diversified strategies, coupled with active management, will enable investors to separate the wheat from the chaff and thrive in this environment.