Q3 2024 CIO Review and Outlook

Key Takeaways

  • We see broader opportunities for investment returns in emerging markets, driven by domestic economies and supported by an easing monetary environment.
  • We expect markets to be volatile over the medium term but India, Japan and Southeast Asia offer the potential for better risk-adjusted returns for investors looking to diversify away from U.S. technology-related investment strategies.
  • China’s stimulus measures are positive but the economic environment is still challenging, weighed down by the weak property market and poor consumer sentiment. There are alpha opportunities for the stock picker.

Volatility has been the watch word for many markets over the past quarter. Concerns over a U.S. slowdown, China’s struggles, the sustainability of the artificial intelligence (AI) boom and rising rates in Japan, have triggered sharp moves in sentiment and equity prices. Yet, emerging markets overall have performed well. Toward the end of the third quarter, we also had the 50 basis points (0.50%) interest-rate cut by the Federal Reserve and a raft of stimulus measures in China. The potential onset of a U.S. rate cutting cycle could provide a significant catalyst for economic growth and strong performance in emerging markets.

Before delving into how some of our key markets performed last quarter, it’s worth putting some perspective around the Fed’s rate cut. Generally, there are two reasons for rate cuts, in our view. One is to return to a normalized monetary path and the other is to get economies out of trouble. In this case, we believe it is the former and solid U.S. economic growth is good news for the world economy and emerging markets. The Fed’s rate cut will also, we think, provide an impetus for a number of central banks to cut their own rates. It’s a significant turning point for emerging markets, particularly in Asia, in our view. Growth is picking up and Asia’s economies are also on a much more normalized cycle than in the U.S. because demand wasn't helped by fiscal policy and handouts.