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Δ Overweight ∇ Underweight — Neutral

Equity – at a glance    —

27 SEPTEMBER 2024

• We retain a core holding (Neutral) on global equities and expect them to perform in line with bonds and outperform cash. We are Overweight US equities, underpinned by our expectation that Fed rate cuts will achieve a soft-landing for the US economy. We expect US outperformance to be driven by its accelerating earnings growth heading in 2025. A cooling labour market and the US elections in November are near-term risks to the market.
  
• We see UK equities as a core holding (Neutral) with an attractive dividend yield and valuation discount, alongside improving economic data. UK equities offer a defensive sector composition but the lack of growth sectors could limit outperformance. We are Underweight Europe ex-UK equities amid a deteriorating earnings outlook, despite cheap valuations.
  
• Asia ex-Japan equities are a core holding (Neutral). Within the region, we are Overweight India equities, supported by rapid economic growth and robust net inflows from foreign investors. China equities are a core holding (Neutral) for us with ongoing policy easing measures likely to help moderate concerns about economic growth in China. We downgrade South Korea equities to Underweight as price momentum has been poor amid market concerns about its significant exposure to weak demand for memory semiconductor chips. Japan equities are a core holding (Neutral). We are encouraged by improving share buybacks and the reflationary environment, although the transition to a new prime minister could result in some uncertainty.
  

North America equities – Preferred holding     Δ

27 SEPTEMBER 2024

The bullish case:

• Tailwinds from a soft-landing scenario
• Broadening earnings growth
• Technology sector propelling performance

The bearish case:

• Overconcentration on Magnificent 7
• Macro uncertainties: e.g., US election
• Expensive valuations. Elevated positioning

Europe ex-UK equities – Less Preferred holding     ∇

27 SEPTEMBER 2024

The bullish case:

• Appealing corporates’ buyback & dividend
• Cheap valuations
• Loosening policies from the ECB

The bearish case:

• Deteriorating earnings outlook
• Increasing geopolitical tensions
• Slump in economic sentiment

UK equities – Core holding     —

27 SEPTEMBER 2024

The bullish case:

• High dividend yield; Cheap valuations
• Relatively defensive sectors
• Recovery in economic data

The bearish case:

• Weak earnings growth expected in 2024
• Light in growth sectors
• Economic rebound may not sustain

Japan Equities – Core holding     —

27 SEPTEMBER 2024

The bullish case:

• Rising share buybacks and dividends
• Rising ROE from corporate reforms
• Further improvement in earnings outlook

The bearish case:

• Foreign net inflows decelerating
• Rebound in JPY to hurt company earnings
• Exposed to global cyclical slowdown

Asia ex-Japan equities – Core holding     —

27 SEPTEMBER 2024

The bullish case:

• China’s fiscal and monetary stimulus
• Higher EPS growth projected in 2024
• Attractive valuations; Low positioning

The bearish case:

• Soft survey data and economic activities
• Lack of confidence from investors
• Intensification of geopolitical tensions

Δ Overweight     ∇ Underweight    — Neutral

Bonds – at a glance     —

27 SEPTEMBER 2024

• We maintain a balanced allocation between government bonds (rates) and corporate/Emerging Market bonds (credits). We anticipate the Fed will further cut rates over the next 12 months, providing potential for capital gains from softer yields.
  
• Developed Market (DM) Investment Grade (IG) government bonds remain a core holding (Neutral). We expect the US 10-year government bond yield to be range-bound between 3.50-3.75%, albeit with a rise towards 4% possible in the short term.
  
• DM IG corporate bonds are now a core holding (Neutral) alongside DM High Yield (HY) corporate bonds. Although yield premiums are tight from a historical perspective, strong fundamentals and our expectation of a US soft-landing support their valuations, in our view.
  
• EM USD government bonds are reduced to a core holding (Neutral) alongside EM local currency government bonds. Rising geopolitical risks ahead of the US election, and the risk of falling industrial commodity prices, are balanced bysupportive fiscal and external fundamentals and fair valuations relative to history.
  
• We maintain a core holding (Neutral) view on Asia USD bonds, with a balanced view between Asia IG and HY.

Developed Market Investment Grade government bonds – Core holding     —

27 SEPTEMBER 2024

The bullish case:

• DM central banks’ pivot
• Attractive yield compared to own history

The bearish case:

• A shorter than expected loosening cycle
• Unfavourable supply-demand balance

Developed Market Investment Grade corporate bonds – Less Preferred holding     ∇

27 SEPTEMBER 2024

The bullish case:

• High rate sensitivity (long duration) a positive from falling interest rates
• Attractive yield compared to own history

The bearish case:

• Relatively tight yield premium
• Weakening credit fundamentals

Developed Market High Yield corporate bonds – Core holding     —

27 SEPTEMBER 2024

The bullish case:

• Lower interest rate eases refinancing pressure
• Attractive yield on offer

The bearish case:

• Rating downgrade risk
• Default risks

Emerging Market USD government bonds – Preferred holding     Δ

27 SEPTEMBER 2024

The bullish case:

• High rate sensitivity (long duration) a positive from falling interest rates
• Stronger commodity prices

The bearish case:

• Commodity price disinflation
• Geopolitical risk amid US election

Emerging Market Local currency government bonds – Core holding     —

27 SEPTEMBER 2024

The bullish case:

• Supportive EM currency outlook
• High EM monetary policy flexibility

The bearish case:

• Unfavourable yield differentials with DM
• Rate cut expectation is in the price

Asia USD bonds – Core holding    —

27 SEPTEMBER 2024

The bullish case:

• Regional growth well-supported
• Rising investor positioning

The bearish case:

• Soft China economic growth outlook
• Defaults or bond restructuring risk

Δ Overweight     ∇ Underweight    — Neutral

Commodities – at a glance

27 SEPTEMBER 2024

• We raise our 3- and 12-month gold price forecast to USD 2,600/oz and USD 2,800/oz, respectively, while retaininggold as an Overweight relative to equities, bonds and cash. Gold prices charged higher to new all-time highs in September as the Fed commenced its rate cutting cycle with a jumbo 50bps cut. While expectations of Fed and other central bank rate cuts may be largely priced into the market, they could still provide some boost to gold prices when implemented. Consequently, global gold ETF inflows would also enjoy an uplift. Robust official sector purchases have been a strong anchor of demand in the recent years. The latest Q2 data continued to reflect that – central bank purchases in the first half of this year are the largest since the turn of the century. Given the structural nature of central banks’ demand, we see that sustaining heading into 2025.
  
• We lower our 12-month WTI oil forecast to USD 70/bbl on rising growth and supply risks. Crude oil prices slumped this month, driven by growing demand concerns amid a slew of soft data and pessimistic outlook. Concurrently, positioning has declined to a near-record short. While our base case is not a recession, we believe the global economy could cool further, weighing on oil demand. The demand-supply balance is likely to turn to a surplus, especially as the OPEC+ begins its recently delayed tapering plan in December. Reports of Saudi Arabia shifting from targeting price to market share is also an upside risk to supply. In the near term, we see WTI oil trading at around USD 70/bbl, albeit with some volatility. Firstly, the extreme bearish oil position is prone to a reversal. Secondly, geopolitical tensions, particularly in the Middle East, could escalate. Thirdly, the new agreement between rival Libyan factions to appoint a new central bank governor may see more than 500kb/d of supply returning to market.
  

Gold      —

27 SEPTEMBER 2024

The bullish case:

• A normalisation in Fed rates
• Escalation of geopolitical tensions
• Safe-haven bids
• Reserve diversification for central banks
• Strong central bank and physical demand
• USD weakness
• ETF inflows

The bearish case:

• Rising real yields increase opportunity costs of holding gold
• Geopolitical risk premium tends to be short-lived
• USD strength
• Risk-on sentiment
• Demanding valuations
• Stretched bullish positioning

Crude Oil

27 SEPTEMBER 2024

The bullish case:

• Resilient global economies
• Supply disruptions
• Geopolitical risk premium
• Low inventories
• US shale underinvestment
• US SPR refill
• Extreme bearish positioning

The bearish case:

• Tight monetary policies; growth slowdown
• Redirection of Russian oil flows
• Significant global spare capacity
• OPEC+ supply hikes and discipline
• Lower demand from energy transition
• Elevated non-OPEC supply

Δ Overweight     ∇ Underweight    — Neutral

Alternatives at a glance     —

27 SEPTEMBER 2024

The bullish case:

• Diversifier characteristics

The bearish case:

• Equity, corporate bond volatility

Δ Overweight     ∇ Underweight    — Neutral

Multi-Asset – at a glance

27 SEPTEMBER 2024

• Our Multi-Asset Income (MAI) strategy has delivered strong returns of 5.8% over the most recent three months ended 26 September 2024. Returns picked up since the start of the third quarter on the back of Fed’s easing expectations, driving a broad-based rally in both bond and equity markets. The performance of high-dividend equities caught up, after languishing for much of the year behind global equities, as investors grew more confident of a soft-landing to broaden out from tech-heavy global equities into high-dividend equities. Our MAI model now yields c.5.8%, dipping below the 6% mark for the first time this year.
  
• MAI yield down slightly (5.6% as of 31 August 2024), but total return prospects still compelling against cash. The Fed’s recent outsized 50bps cut should help the case for a US economic soft-landing, benefitting dividend equities and rate-sensitive assets such as infrastructure equities, REITs and bonds within the MAI strategy. Historically, easing cycles during soft-landing episodes tend to be supportive of both credit and bonds. The MAI strategy, with an almost 60% allocation to rate sensitive assets, is well-positioned to benefit from the Fed easing cycle. With cash yields likely to continue declining (see page 9), income strategies can offer an attractive alternative given their better return and yield potential.