Indosuez Wealth Management, the global wealth management brand of the Crédit Agricole Group, this week unveiled its investment outlook for 2024. As 2023 closes with falling inflation and monetary policies "normalising," the firm believes that 2024 should offer investors many opportunities.

Although the decline in inflation is being confirmed, it could still remain above central banks' targets, even if the Fed were to make three or four interest rate cuts next year. Meanwhile, the European Central Bank (ECB) is likely to keep in step with the rate cut but at a slower pace than in the US, according to Paris-based Indosuez Wealth Management.

The firm said that greenflation is exerting upward pressure on inflation, counterbalanced by the increase use of artificial intelligence (AI), which could contribute to improved productivity and lower prices.

Asset allocation
Delphine Di Pizio Tiger, global head of asset management at Indosuez Wealth Management, believes that bonds are back: “Bonds are becoming, once again, an asset class offering a return that is not only positive, but also potentially higher than inflation. Credit markets deliver value, especially in the investment grade category. With a real yield of 2 per cent, inflation-linked bonds offer a good carry and a hedge against higher inflation or lower-than-expected growth.” 

She thinks that debt sustainability will become a hot topic in 2024, but as far as interest charges are concerned, two thirds of 2024 refinancing needs are already in the form of Treasury bills, with the treasury paying an interest rate of around 5.4 per cent.

Di Pizio Tiger sees investment grade as the “sweet spot.” “We are constructive on high quality issuers as investors allocate more into fixed income thanks to higher rates.” She is not alone in her views. Other wealth managers also favour bonds in 2024. Paris-based asset manager Carmignac, UK wealth manager Brown Shipley, HSBC Global Private Banking, and UBS Global Wealth Management all see value in quality bonds in 2024. See more here and here.

Equities
Di Pizio Tiger remains constructive on equities for 2024, as they benefit from resilient margins in a world of higher nominal growth. She highlighted three key themes: AI, energy transition and deglobalisation. AI will remain a megatrend led by the “Magnificent 7,” namely Apple, Amazon, Alphabet, NVIDIA, Meta, Microsoft and Tesla, due to their immunity to rising rates, substantial cash reserves and huge investment in research and development (R&D), she added.

She believes that a fall in interest rates represents an opportunity to increase exposure to the Green Transition thematic. Industrial and manufacturing domains could benefit from deglobalisation. “Key players in AI, and more broadly the growth companies, are mainly in the US, which should continue to drive the earnings growth over the next years,” Di Pizio Tiger continued, adding that she has a preference for a broader approach on emerging markets, especially Asia, excluding China, which they look attractive for 2024.

She also expects the dollar to depreciate slightly in 2024, as lower federal interest rates and a weak global economy may favour high-beta currencies. The euro could also regain some colours. Avoiding a recession in Europe will fuel risk appetite for the euro, Di Pizio Tiger said. The inflationary environment and higher real rates are also major headwinds for gold, but strong support remains, led by the Fed normalisation and central bank demand.

Sustainable finance
Di Pizio Tiger said the energy transition requires massive investment in new technologies and infrastructure, and could lead to green inflation in the short term.

By 2070, the cost of climate inaction will be two times more than the investments needed to make the transition to carbon neutrality by 2050, so she thinks that inaction is not an option.

“ESG also offers opportunities for 2024,” Di Pizio Tiger continued. “After a difficult year for the global energy transition sector, the headwinds are beginning to fade. Investors have begun to discount the impact of rising interest rates. Valuations are once again attractive with investment opportunities in areas such as clean transport, renewable energies and environmental technologies.” 

Private markets
Di Pizio Tiger believes that a new environment of higher inflation and rates should emphasise differentiation between investment managers on their ability to generate value through operational improvements rather than through financial engineering.

There will be a new set of opportunities in 2024. Private Equity funds will benefit from attractive entry prices into what she thinks will be a buyer’s market.

“Large pools of small and medium-sized companies will remain a very attractive segment. Distressed credit and structured capital strategies will be attractive ways to play the private credit market, which should benefit from the current environment,” she continued. Leveraging on its long-term vision, away from public market volatility, she believes that the asset class carries the tools needed to continue delivering outperformance.

Indosuez Wealth Management, which is located in Europe (Belgium, Spain, France, Italy, Luxembourg, Monaco and Switzerland), Asia-Pacific (Hong Kong SAR, New Caledonia and Singapore) and the Middle East (United Arab Emirates), has €130 billion ($142 billion) in assets under management.