Active Management Insights: To Tech and Beyond?

Executive summary:

  • Investors experienced a shift in global risk sentiment during Q4, marked by lower inflation and the anticipation of an end to the rate hiking cycle.
  • The prospect of lower interest rates and improved business sentiment has ignited expectations of expanding investment opportunities beyond the dominant Tech sector which drove much of the returns in 2023.
  • A divergence among investors persists, with some foreseeing a looming recession yet to fully impact the economy, thereby continuing to tilt their portfolios towards defensive companies, emphasizing resilient growth and strong financial positions capable of withstanding tougher trading conditions.

Broad global trends

Expectation of soft landing drives renewed risk appetite, but investors remain divided

  • On the back of lower inflation and an anticipated end to the rate hiking cycle, investors switched to risk-on mode, driving a re-rating across markets in Q4. Expectations of lower interest rates alongside improved business sentiment could trigger a new capex cycle. This would broaden the current opportunity set beyond the Tech sector (which drove the majority of the returns in 2023).
  • Nonetheless, some investors still believe that a recession remains on the cards, with high rates yet to be fully felt across the economy. Lower rates will also likely lead to further USD weakness and a push up real asset pricing.
  • These investors continue to tilt portfolios towards defensive companies with resilient growth and strong book balances that can endure tougher trading environments.