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Δ Overweight     ∇ Underweight    — Neutral

Equity tax – at a glance     —

3 DECEMBER 2024

• We retain a core holding (Neutral) on global equities and anticipate they will perform in line with bonds while outperforming cash. We are Overweight US equities, underpinned by our expectation that Fed rate cuts will lead to a soft-landing for the US economy. Earnings growth remains robust, and macro data remain healthy. However, near-term risks include a cooling labour market and the US elections in November.
  
• UK equities are also a core holding (Neutral), with an attractive dividend yield and valuation discount, alongside improving economic data. While UK equities offer a defensive sector composition, the lack of growth sectors could limit outperformance. We are Underweight Europe ex-UK equities given a deteriorating earnings outlook, despite their cheap valuations
  .
• Asia ex-Japan equities are a core holding (Neutral). Within the region, we are Overweight India equities. Domestic investors have continued to add exposure, even as foreign investors have partly reallocated into China. We believe Indian equities will continue to demonstrate strong earnings and robust economic growth over the medium term. China equities are a core holding (Neutral), with ongoing policy easing measures likely to help mitigate concerns about economic growth. Japan equities are also a core holding (Neutral), supported by improving share buybacks and a reflationary environment, although they face the risk of a stronger JPY due to a potential unwinding of the so-called carry trade.
  

North America equities – Preferred holding     Δ

3 DECEMBER 2024

The bullish case:

• Strong earnings growth
• Room for rate cuts

The bearish case:

• Elevated valuations
• Political risk

Europe ex-UK equities – Less Preferred holding     ∇

3 DECEMBER 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     —

3 DECEMBER 2024

The bullish case:

• Attractive valuations
• Dividend yield

The bearish case:

• Low earnings growth
• Fiscal risk

Japan Equities – Core holding    —

3 DECEMBER 2024

The bullish case:

• Reasonable valuations
• Rising dividends/share buybacks

The bearish case:

• Expected JPY strength

Asia ex-Japan equities – Core holding     —

3 DECEMBER 2024

The bullish case:

• Earnings rebound
• China policy support

The bearish case:

• China growth concerns
• US election risk

Δ Overweight     ∇ Underweight    — Neutral

Bonds – at a glance     —

3 DECEMBER 2024

• We maintain a balanced allocation between government bonds (rates) and corporate and Emerging Market (EM) USD bonds (credits). Higher rates volatility, in our view, has presented opportunities to raise exposure to bonds as yields have surged.
  
• Developed Market Investment Grade (DM IG) government bonds remain a core holding (Neutral). We believe concerns over the Fed easing less than initially expected and US fiscal deficits are overstated, enhancing the asset class’s risk-reward appeal. However, given the near-term upside risks to yields, we have adjusted our 3-month target for the US 10-year yield to 4.00-4.25%.
  
• DM IG corporate bonds remain a core holding (Neutral) alongside DM High Yield (HY) corporate bonds. Although yield premiums are close to historically tight levels, strong fundamentals and our expectation of a US economic soft-landing support their valuations, in our view.
  
• EM assets, such as EM USD and local currency government bonds and Asia USD bonds, are core holdings (Neutral). We believe rising geopolitical risks ahead of the US election and potential declines in global industrial commodity prices are balanced by supportive fundamentals. Additionally, we have a balanced view between Asia IG and HY bonds.
  

Developed Market Investment Grade government bonds – Core holding     —

3 DECEMBER 2024

The bullish case:

• High credit quality
• Attractive yields

The bearish case:

• High sensitivity to monetary policy
• Fiscal risk

Developed Market Investment Grade corporate bonds – Less Preferred holding     —

3 DECEMBER 2024

The bullish case:

• High credit quality,
• Sensitive to falling yields

The bearish case:

• Elevated valuations

Developed Market High Yield corporate bonds – Core holding     —

3 DECEMBER 2024

The bullish case:

• Attractive yield
• Low rate sensitivity

The bearish case:

• Elevated valuations
• Sensitive to growth

Emerging Market USD government bonds – Preferred holding     —

3 DECEMBER 2024

The bullish case:

• Attractive yield
• Sensitive to US rates

The bearish case:

• Commodity prices

Emerging Market Local currency government bonds – Core holding     —

3 DECEMBER 2024

The bullish case:

• Attractive yield
• Room for policy rate cuts

The bearish case:

• USD strength
• US election risk

Asia USD bonds – Core holding    —

3 DECEMBER 2024

The bullish case:

• Moderate yield
• Policy support

The bearish case:

• China structural growth concerns

Δ Overweight     ∇ Underweight    — Neutral

Commodities – at a glance

3 DECEMBER 2024

• We raise our 3-month gold forecast to USD 2,800/oz, while maintaining gold at Overweight relative to other major asset classes. Gold extended its rally in October, breaking above USD 2,700/oz to fresh record-highs, as investors piled into the yellow metal amid the heightened geopolitical risk backdrop. The rebound in both real and nominal bond yields amid hawkish repricing of Fed rate expectations did little to drag down the precious metal – this suggests that gold has several tailwinds and the underlying inflows remain strong, in our view. Tactical positioning is crowded, but it is supported by an increasingly positive sentiment towards gold. Gold ETF holdings have risen substantially in recent weeks, but remain well below their peak. Based on these trends, we expect further upside for gold in the coming months.
  
• We see more upside risk for oil prices following the recent plunge. Reports suggesting rising prospects of a ceasefire in the Middle East conflict and the avoidance of significant escalation amid tit-for-tat strikes across the region helped unwind the  geopolitical risk premium for crude oil prices. Meanwhile, tactical positioning hovers near a record short level. The combination of near-record short positioning and depressed prices raises the odds of a reversal. Moreover, OPEC+ may delay its output tapering plan a second time, especially after the recent price slump. Technically, prices close to USD 67/bbl have been a strong support level on several occasions in the past two years. Thus, we raise our 3-month WTI oil forecast to USD 75/bbl. In the longer term, we expect the demand-supply balance to shift to a surplus (details below), exerting downward pressure on oil prices.
  

Gold      —

3 DECEMBER 2024

The bullish case:

• Portfolio hedge
• Central bank demand
• Falling real rates

The bearish case:

• Resilient USD

Crude Oil

3 DECEMBER 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     —

3 DECEMBER 2024

The bullish case:

• Diversifier characteristics

The bearish case:

• Equity, corporate bond volatility

Δ Overweight     ∇ Underweight    — Neutral

Multi-Asset – at a glance

3 DECEMBER 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.