Amundi, a European asset manager, released its 2024 Global Investment Outlook this week, highlighting that slower and fragmented growth will offer sequential opportunities, with India growing faster than China, and the bright spot being Japan.

Amundi expects a fragmented outlook in 2024, with global growth gradually weakening while inflation should temper but remain above central banks’ targets until the end of the year. 

Assuming that the Middle East crisis remains contained, the firm believes that weaker global economic outlook will be mainly driven by a slowdown in developed markets (DM). “We forecast 2024 global GDP growth at 2.5 per cent and expect growth in DM to average 0.7 per cent versus 3.6 per cent in emerging markets (EM),” the firm added.

For 2025, Amundi forecasts global, DM, and EM real GDP growth at 2.7 per cent, 1.5 per cent, and 3.6 per cent respectively.

“Investing in 2024 will be all about quality sovereign and corporate bonds, and seeking growth through Asian equities, as this region should benefit from better economic prospects than the others,” Vincent Mortier, group CIO of Amundi, said. “Investors should also seek opportunities through companies positioned on promising long-term themes such as the energy transition or supply chain relocations. Nevertheless, investors will have to wait until the second half of the year to consider European stocks.” 

“Turning tides in growth, inflation, and monetary policy will generate opportunities for investors to add on risk assets during the year,” Monica Defend, head of Amundi Investment Institute, added. 

The growth differential between developed and emerging markets should reach a five-year high. The US will face a mild recession in the first half of 2024, while eurozone growth will remain mildly positive and Japan should be somewhat moderate. Emerging markets remain more resilient but show higher fragmentation, with Asia standing out as a clear beneficiary of investment flows, the firm said.

“We expect the US will face a mild recession in the first half of 2024, as tight financial conditions begin to impact consumers and businesses. In the second half of 2024, growth should stabilise below potential and inflation move closer to target. Our forecast is a 0.6 per cent growth rate in 2024 and 1.6 per cent in 2025,” Mortier added.

Meanwhile, growth in the eurozone should remain low, with mixed dynamics across countries, as fiscal policy becomes more restrictive on top of already tight monetary policy. The firm expects both the eurozone and the UK to grow by 0.5 per cent in 2024, and by 1.2 per cent and 1.3 per cent in 2025, respectively.

It also believes that emerging markets are heading towards a cyclical downturn amid weak global demand. In China, additional fiscal stimulus will not reverse the trend towards lower growth (3.9 per cent in 2024 and 3.4 per cent in 2025). India is emerging as a new power offering bright economic prospects amid strong domestic demand and investments (6 per cent growth in 2024 and 5.2 per cent in 2025), the firm said.  Finally, countries at the centre of new supply chain routes in Asia or rich in natural resources in Latin America should do better, the firm said.

With weaker demand, inflation should converge towards central banks’ targets by the end of 2024, the firm added. Risks of higher inflation remain in an era of disorderly energy transition and global realignment, which could drive a surge in energy and food prices. These risks could halt or reverse the process in place.

The firm expects DM central banks to remain on a hawkish pause over the first half of 2024, until inflation appears more under control. Inflation in the US will influence the Fed’s response, thus determining the depth of the recession. Amundi expects the Fed and the European Central Bank (ECB) to bring interest rates down by an overall 150 and 125 basis points respectively in 2024. In emerging markets, disinflation is ongoing and central banks have some room to cut rates but little room for error in re-anchoring inflation.

In conclusion, the firm said that in 2024, investors will need to navigate a fragmented economic outlook. The high disparity in valuations and excess liquidity drying up will lead to higher equity volatility. “Lower growth and inflation may favour a return to a negative bond-equity correlation, which is good news for diversification and multi-asset portfolios. Real and alternative assets (such as macro and fixed income hedge funds) may further add to traditional diversification. Gold can provide protection from geopolitical risk and some commodities can hedge against inflation,” the firm continued.

“Fixed income is king amid peaking rates – quality bonds (sovereign or corporate) are the favoured asset class entering 2024. Gradually add duration and focus on investment grade credit, EM debt in hard currencies and euro high yield short-term. Add more EM local currency debt after the Fed starts cutting rates and the US dollar weakens. US high yield may be pressured by high refinancing costs in the first half of 2024 and could come back when financial conditions ease in the second half of 2024," the firm said.

Entering 2024, the firm said that it is important to stay defensive and focused on dividend sustainability, quality, and low volatility. Favour value in the US and Japan. “When the Fed starts cutting rates, turn to more cyclical markets and sectors, such as Europe, emerging markets, and small caps. Themes to watch in equity will be the energy transition, healthcare, and artificial intelligence,” the firm added.

At the start of the year, Amundi favours fixed income hard currency debt, and adding local currency debt when the Fed pivots. “EM equity should benefit from a rebound in earnings, particularly in Asia. Throughout the year, look at long-term (India) and nearshoring stories, as well as winners in the energy transition (commodity exporters like Brazil) and technological advances (China),” the firm said. “Currency management will be a key factor in 2024, given expectations of a weaker US dollar.” 

The firm said at a media event that it is underweight in the US, neutral in Europe and constructive on Asia. See here more articles on Japan and India.