April 2024
Equities should extend their rally as interest rate cuts appear imminent in the US and other developed economies.
Asset allocation: sticking with equities
While global economic and liquidity conditions are far from rosy, we see pockets of improvement that are supportive for risky assets.
The US economy remains resilient, while China is showing signs of a recovery. Also, most major central banks are likely to begin cutting interest rates in a matter of months and banks are willing to lend more. Partly in response, we have increased our forecast for global corporate earnings this year to 8.1 per cent from the previous 7.2 per cent – largely in line with the consensus estimate.
We recognise that equities are getting expensive, especially in markets like the US and Japan. Yet we don’t believe they are forming a bubble.
Considering all this, the balance of risks points towards a continuation of the equity market rally. We therefore remain overweight equities, neutral bonds and underweight cash.
