Investment Watch is a quarterly publication produced by Morgans that delves into key insights for equity and economic strategy. This latest publication will cover;
- Asset allocation – Positioning for a cyclical slowdown/mild recession
- Economic strategy – US economic growth to slow
- Equity strategy – Moving from defensives
- Updated Morgans Best Ideas
- … and much more
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Feature Article | 2024 Outlook
A rapidly evolving investment landscape and a year of likely political uncertainty make forecasting difficult in 2024. We outline three possible scenarios:
- Economic soft landing involves a modest deceleration below trend in major economies, without significant shocks disrupting markets. The decision to maintain higher interest rates will bring inflation near central banks’ target range. This would enable a shift towards reducing interest rates, alleviating the strain on households and companies.
- A cyclical slowdown/mild recession resilience driven by fiscally supported consumers and companies has been the biggest surprise of 2023, but barring something extraordinary, next year could see the global economy finally turn lower. Inflation would be sticky for a period before returning to target, with interest rates staying higher for longer periods, resulting in bouts of asset price volatility.
- Economic hard landing/balance sheet recession will be defined by a sharp downturn in the global economy. A sharp acceleration in corporate defaults would significantly reduce corporate and consumer spending. Central banks would respond by cutting interest rates as growth and inflation fall away.
Equity strategy - Moving on from defensives
Our Asset Allocation update discusses three possible economic scenarios in 2024 and their investment implications in terms of portfolio asset allocation. Our base case scenario expects economic growth to contract in the first half of 2024 before returning to growth later in the year. Sticky inflation will keep interest rates higher for longer. Equities will likely remain range-bound until there is more certainty on the interest rate trajectory either peaking/falling.
Given Australia’s economic sensitivity to falling commodity prices, investors need to tread carefully over the next 3-6 months. As tailwinds from commodity prices fade, we think above-average earnings growth for the market will be harder to come by. Accordingly, we prefer a targeted portfolio approach, tilting toward what we believe are the best relative opportunities and the best risk/return profile e.g., small caps, quality cyclicals.
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