David Dali, Head of Portfolio Strategy, provides his 12-month outlook for global equity markets.
Higher Rates For Longer Delays a Recovery in Sentiment
Emerging markets face headwinds from persistent developed-market inflation and the Federal Reserve’s pledge to maintain tight monetary conditions. While the Fed’s ‘higher for longer’ rate strategy may continue to dampen sentiment, China could prove a bright spot as the government ratchets up policy-induced stimulus which should underpin consumer activity and mitigate further property-sector shocks.
- Emerging markets (EM) have been suppressed as China’s weaker-than-expected post-COVID recovery and a volatile geopolitical environment weigh on sentiment while their economies feel pressure from the Fed’s ‘higher-for-longer’ strategy. Still, China continues to make policy moves to address its economic challenges and a steady cadence of corrective actions has strengthened my conviction that Asian and EM equity allocations may outperform in coming quarters.
- I’ve maintained my Latin America view at neutral given the vulnerability of the region’s largest economies to a potential global slowdown. Tight monetary policy may dampen economic activity but should support the region’s currencies.
- I’m still positive on Asia ex Japan where I remain a slight overweight. As China’s challenges recede, stronger economic growth and a recovery in consumer confidence should support imports from South Korea, Taiwan and Association of Southeast Asian Nations (ASEAN) countries, providing some ballast should a global slowdown take hold.