PARIS, November 15 (Reuters) – The situation is getting complicated for equity markets, but conditions will improve for sovereign bonds as the euro zone is expected to be in recession and American activity is showing signs of slowing down, estimates we at AllianzGI.
AllianzGI has re-exposed itself to stocks after their fall in October, but caution is required for 2024, warned Greg Hirt, Global CIO Multi Asset at AllianzGI, during a press conference on Tuesday.
Companies are in fact faced with the impacts of high rates, which have reached records over more than ten years in the euro zone and the United States, and the fall in inflation expectations which makes it more difficult to maintain margins.
These conditions will weigh all the more as analysts have revised their results forecasts upwards after the third quarter publications, giving objectives that are difficult to achieve in a context of economic slowdown, while the markets severely punish any disappointment in results.
In the United States, Greg Hirt predicts a recession in the second quarter of 2024: the volume of American household savings has been underestimated, contributing to the good performance of American activity so far, but several leading indicators suggest that the economy is weakening.
The markets could also have to deal with a Federal Reserve that is less accommodating than expected: Greg Hirt judges that the central bank would only lower its rates in the third quarter of 2024, when investors are betting on a first reduction in June.
The euro zone will be under pressure from Germany, whose manufacturing sector is faced with rising production costs and growing competition from China.
However, the major European indices, such as the Eurostoxx, remain interesting: valuations are low and the international tropism of the components contributes to decorrelating it from the European economic situation.
Conversely, bond securities should benefit from economic headwinds, especially as rates have reached a ceiling and expectations of easing of monetary policies in 2024 will support these assets.
The group has already reconstituted positions in German Treasuries and Bunds to benefit from the high returns on these assets.
Among his other convictions, the asset manager believes that Japanese stocks, whose performance in 2023 surprised the markets, have become too exposed to a change in monetary policy from the Bank of Japan, and that the importance of long positioning international investors pose risks.
On the emerging side, China is becoming attractive again – valuations are low and the economic situation seems to be improving – but inflows into the market are still too low to gain exposure there.
Greg Hirt also favors gold, supported by massive purchases by central banks around the world, oil and energy sector stocks, in a context of rising crude prices, and copper, which will benefit from the Chinese recovery. (Written by Corentin Chappron, edited by Kate Entringer)
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