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The Upside of Uncertainty
Question marks around the timing and strength of global policy easing and the outcome of consequential elections could roil financial markets in the second half – but the resulting volatility and pricing dislocations create rich hunting grounds for active investors.
Four key themes are driving global markets in the second half.
A global easing cycle may have begun – but how far will it go?
The European Central Bank kicked off policy easing with its June policy rate cut, and most other major central banks (save the Bank of Japan) are expected to follow suit. Some, notably in Asia, are waiting for the Federal Reserve to move first, and markets are still pricing in one or possibly two rate cuts in the US in 2024, starting later in the year. Broad easing would likely favor risk assets, but the extent and pace of policy shifts remain an open question – and we see a range of potential implications for investors.
Growth in the US and other regions is witnessing a rare convergence.
The US economy lost momentum in the first quarter, with government expenditures and export growth slowing significantly, retail sales growth trending lower, and manufacturing in contractionary territory. We expect the US economy to keep gradually slowing at the same time that economies in Asia, Europe, and emerging markets are ramping up. While we don’t see this as a structural shift and believe in continued US exceptionalism in the medium term, this rare convergence has created opportunities to diversify portfolios. We examine how investors can leverage this distinct landscape to maximize potential returns.
Geopolitical risks take new turns.
All eyes are on the outcome of the US presidential election in November, which could have far-reaching impacts on asset markets. Divergent views on trade, immigration, and taxation will be top of mind for investors. Gains by far-right parties in Europe pose another volatility risk, with the surprise snap election in France a notable example of potential black swan events. Meanwhile, military risks are ratcheting up as the wars in Ukraine and Gaza wear on, Iran and Israel spar more directly, and North Korea and Venezuela coordinate more closely with Russia and China. What could these developments mean for investors looking to balance risk and reward?
Asia’s macro story could be an alpha tale.
Asia offers a distinct and varied investment landscape supported by structural and sustainable growth, strong demographics, and a steady economic recovery, along with the region’s pivotal position in the global supply chain. The region has positioned itself to harness the growing global interest in AI, and China’s domestic assets are trading at a substantial discount to global and emerging market peers. India is one of the fastest-growing economies globally and is poised to take a greater share of global portfolios amid significant advances in digitalization, growing consumption potential, and active initiatives in energy transition. But given an uncertain investing environment in the second half, asset selection will be key. Read our midyear outlooks to learn where we’re seeing opportunity.
Explore our key convictions for each asset class in our 2024 Midyear Investment Outlook.
2024 Midyear Multi-Asset Outlook: Favoring Equities, Credit, and Rates – in That Order
We have a constructive-leaning view of multi-asset portfolios at midyear, with our positioning outlook boiling down to equities over credit, and credit over rates – but with opportunities in all three.
2024 Midyear Fixed Income Outlook: Keep the Barbells, But Diversify Your Weights
In the second half of 2024, we believe investors should maintain the barbelled approach we had advocated to start the year but with an increased focus on diversifying risks at one end while looking beyond cash at the other.
2024 Midyear Equity Outlook: Opportunities Amid a ‘New Normalization’
Many Covid-era trends are now resolving, including industry backlogs and supply issues, but this “new normalization” does not mark a return to the old status quo. We look at how the resulting price dislocations may create equity investment opportunities.
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Disclosure
Investing involves risk, including possible loss of principal. The information presented herein is for illustrative purposes only and should not be considered reflective of any particular security, strategy, or investment product. It represents a general assessment of the markets at a specific time and is not a guarantee of future performance results or market movement. This material does not constitute investment, financial, legal, tax, or other advice; investment research or a product of any research department; an offer to sell, or the solicitation of an offer to purchase any security or interest in a fund; or a recommendation for any investment product or strategy. PineBridge Investments is not soliciting or recommending any action based on information in this document. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author, may differ from the views or opinions expressed by other areas of PineBridge Investments, and are only for general informational purposes as of the date indicated. Views may be based on third-party data that has not been independently verified. PineBridge Investments does not approve of or endorse any republication of this material. You are solely responsible for deciding whether any investment product or strategy is appropriate for you based upon your investment goals, financial situation and tolerance for risk.