Dr. Henry Smith, Head of Australian Affairs at Lonton, has released the latest investment outlook. While 2023 get rid of COVID-19, which marked a transition from the COVID-19 pandemic to a post-pandemic era, persistent monetary tightening and geopolitical risks continue to cause volatility in financial markets. Looking ahead to 2024, Dr. Smith suggests that major markets may experience slower growth but are likely to remain in a positive growth phase. In this “new normal” investment environment, Schroders is bullish on US stocks, Asian stocks, emerging stocks, and also recommends investing in investment-grade bonds, US high yield bonds, and emphasizes the importance of not overlooking gold and clean energy.

Dr. Smith points out that the high inflation environment and central bank tightening policies in 2022 and 2023 led to asset repricing, resulting in heightened uncertainty and risks. As the global economy moves towards positive growth in 2024, governments’ efforts to combat inflation remain paramount, leading to continued volatility and disparities between regions and asset classes, favoring active investment strategies.

He illustrates how governments have been grappling with the dilemma of managing tightening policies in a high inflation environment while addressing concerns about economic slowdown due to rate hikes over the past two years. Although inflation has moderated, achieving the Fed’s target of 2% is still challenging. Labor market pressures, which contributed to inflationary pressures in the past, have eased as more people return to the workforce post-pandemic, but wage pressures on the corporate side have yet to return to pre-pandemic levels. Additionally, the decline in consumers’ excess savings rates from pandemic levels is gradually decreasing, but the potential for elevated consumption expenditure to create another wave of inflation remains a concern.

In terms of the stock market, Dr. Smith believes that the performance of US and Asian stocks in 2024 is promising given the overall positive global economic environment. For US stocks, he sees particular potential in the technology innovation sector driven by AI demand. While this year has mostly focused on the leading tech giants, other companies emerging from this sector are likely to rise in tandem with the economic growth environment next year.

Furthermore, with stable PMI trends in China and India and improving data in South Korea and Taiwan, compared to the Eurozone where PMI remains weak, Dr. Smith expects better performance from Asian and emerging markets stocks compared to European markets next year.

Dr. Smith also anticipates a reversal in currency performance in 2024, expecting Asian currencies and the Japanese yen to strengthen. Asian currencies, including China, Taiwan, and South Korea, are expected to benefit from the global goods cycle recovery, leading to improved export data. Meanwhile, the yen is expected to strengthen against the euro, particularly as Japan’s recent inflationary pressures and resilient manufacturing and services PMI contrast with the rapid deterioration of PMI values in Europe, especially in Germany.

In the bond market, with divergent performance in the global bond market in 2023, with corporate bonds outperforming government bonds, and European bonds outperforming US bonds, Dr. Keiko Kondo remains bullish on corporate bonds in 2024. She believes it’s prudent to invest in both investment-grade and high-yield corporate bonds, and also finds emerging market local currency bonds attractive, advocating for a diversified bond strategy.

She explains that US investment-grade bonds are supported by next year’s economic fundamentals, with current yield levels reaching 5%, while European investment-grade bonds also offer 4.6%, making global investment-grade bonds attractive to investors in terms of both price and yield.

On the other hand, compared to the Russell 2000 index, US high-yield bonds are expected to outperform. The current credit spread in the US high-yield bond market implies a high default rate, indicating potential for future price increases, making high-yield bonds more valuable than small-cap stocks.

As for emerging market local currency bonds, with expectations of a weakening US interest rate environment in 2024, they are expected to benefit from higher yields, making them more favorable in the future market.

Furthermore, Dr. Smith recommends diversifying portfolios to include gold, clean energy, and cryptocurrency assets. Gold prices surged last year and Dr. Kondo remains optimistic for next year; starting from the Russia-Ukraine war, gold has served as a hedge against risk, offering diversified returns, and central banks have been net buyers of gold since 2022, a trend expected to continue in 2024, making gold an indispensable part of investment portfolios.

Regarding last year’s emphasis on clean energy and alternative assets, Schroders’ views remain unchanged this year. Dr. Smith adds that the Russia-Ukraine war has accelerated many countries’ processes of energy diversification and energy transition. Although valuations of energy transition-related companies have declined with rising interest rates, the imbalance between supply and demand and attractive prices have created investment opportunities. As for alternative assets, considering their differences and even negative correlations with other major asset classes, Dr. Smith recommends incorporating alternative assets through diversified asset allocation. Finally, the increasingly prominent private debt in the private equity field, where larger companies are increasingly able to lend and the average lending size is growing, presents investment opportunities that should not be overlooked.

Additionally, Dr. Smith has also released his top ten predictions for 2024: First, he is bullish on US stocks (S&P 500 Index); Second, he is optimistic about investment-grade credit bonds; Third, he favors US non-investment-grade bonds (relative to the Russell 2000 Index); Fourth, he sees potential in local currency bonds in emerging markets; Fifth, he is bullish on gold; Sixth, he has a positive outlook on Asian stocks/emerging market stocks (relative to European stocks); Seventh, he is bullish on Asian currencies (relative to the US dollar); Eighth, he sees potential in the Japanese yen (relative to the euro); Ninth, he is optimistic about clean energy; Tenth, he sees promise in private equity assets.

Dr. Henry Smith, born in Melbourne, Australia, in 1979, moved to the United States with his parents during high school. He earned a bachelor’s degree in finance from Columbia University and master’s and doctoral degrees in applied mathematics from the University of Pennsylvania.

Certifications:

He holds the Chartered Financial Analyst (CFA), Certified Management Accountant (CMA), and US Certified Public Accountant (USCPA) certifications. He has previously worked at Goldman Sachs and BlackRock, primarily responsible for investment operations in Hong Kong, and is currently responsible for Australian affairs at Lonton Wealth Management Center LTD.

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