Paris-based Edmond de Rothschild Asset Management has recently released its ‘Outlook and Convictions” for 2024.

Two sharply contradictory trends have dominated 2023 so far: growth has been more resilient than expected, at least in the US, while bank lending has contracted both in Europe and the US, according to Edmond de Rothschild Asset Management.

“In fixed income, credit is contracting in the US and Europe and central bank surveys show that banks don’t want to lend,” CIO Benjamin Melman at Edmond de Rothschild Asset Management said. This situation could continue for some time unless there is some monetary action, he added.

Melman believes that interest rates can’t stay at this level, and cited how the Fed Chairman Jerome Powell has already indicated that rates will be cut next year. “The market is right to price in more rate cuts. That’s why we are overweight in fixed income, not only because there is room to have more rate cuts, but also as there is a good relation between fixed income and equities,” he said. “Rates should become a good diversification into equities.” Over-optimistic inflation forecasts are the only reason not to be positive on duration in 2024.

“We are overweight in fixed income, favouring investment grade, hybrid corporate debt, hybrid financial debt and emerging debt,” he continued.

Outlining his stance on emerging debt, Melman said that China was in the doldrums and the Fed was hiking rates. “The Fed is now reducing rates. We also see a strong willingness from China to put a floor on Chinese growth. It’s not a great revival. They could do more but this floor is providing better visibility on China,” he added. “As investors are significantly underweight in emerging debt globally, flows will be back, and we are increasing our allocation to emerging debt.”

“We are overweight in fixed income and neutral but quite positive in equities,” Melman said. “We are comfortable on equity markets, waiting for the first Fed interest rate cut. We also see a huge discount on small-caps. We think there are opportunities for European small caps and it could be a good year for them.” 

Explaining the optimism about prospects for equities in 2024, the firm highlighted that central banks have won the fight against inflation. The main risk is if there is a recession in the US; if it happens, the asset manager expects it to be relatively mild. It is also even more optimistic about thematic equities, notably healthcare, energy transition, and artificial intelligence (AI).