European investment house Mediolanum International Funds Limited has just released its global investment outlook for 2024.

Ireland-based Mediolanum International Funds Limited (MIFL) thinks that 2024 has seen the third and final act of the inflation shock story, which has driven asset returns over the last three years, spelling positive news for investors and consumers. 

Global inflation is predicted to ease and prices are expected to remain within central banks’ acceptable levels at 2 per cent by the middle of this year, MIFL said in a note. However, MIFL cautions that rate cuts are unlikely to begin until later in the year; It believes that the aggressive rate cuts expected by market watchers in the first quarter are probably too optimistic. In a year of national elections, which could impact fiscal and trading policies, MIFL’s outlook highlights the need for money managers to be adaptable to changing economic and market conditions.

Bonds, especially in Europe and the UK, stand to benefit from potential rate cuts, while emerging markets present opportunities, the firm said.

“It’s expected that the European Central Bank (ECB) will cut rates more than market currently discounts creating a softer macro backdrop, which may see European and UK fixed-income assets outperform their US counterparts,” MIFL said. Likewise, countries with weaker economies should see bigger rate cuts.

While some emerging markets took a proactive monetary policy approach in 2023, the firm said that groundwork has been laid for a strong outlook in 2024, with the asset class already delivering higher real yields than most developed markets. MIFL has a constructive view of Latin America, where energy-producing countries, such as Colombia, Mexico and Brazil, are less vulnerable to oil price spikes. Similarly, it has a positive view of oil-producing Indonesia.

The firm holds a defensive stance on corporate bonds, due to slow-growth backdrop, particularly high yield, given lower credit rating. But a significant default wave is not expected, as the maturity wall will not hit until 2025.

This week, BCA Research also favoured UK gilts and core European government bonds over the next 12 months. BCA Research is overweight in both UK gilts and German bunds, with a preference for UK gilts considering the country’s low neutral rate. Other wealth managers also favour bonds in 2024. UK wealth manager Brown Shipley, Paris-based asset manager Carmignac, HSBC Global Private Banking, UBS Global Wealth Management see value in quality bonds in 2024. See more coverage here. 

Equities
According to MIFL, equities retain strong earnings, but valuations are modestly expensive. Current earnings per share estimates are above 10 per cent, but market gains are likely harder to come by in 2024 due to high valuations in tech after a blockbuster 2023.

MIFL believes that technology is a secular trend that will play out over many years, although in the short term, it might re-rate should a recession surface in 2024, leading investors to take profits and seek defensive sectors such as healthcare, pharmaceuticals, consumer staples and utilities.

“China could also be a catalyst for global equities if it can bolster its currently struggling economy,” the firm continued. This outcome would favour European exporters, including German carmakers, and French and Italian luxury products. Both European and Chinese equities are currently trading at more favourable valuation multiples, of 11 times and 14 times earnings, respectively, making them more attractive in the event of an economic rebound.

MIFL’s preference is for quality stocks with strong pricing power. If central banks can engineer a soft landing, the firm favours non-US equities, value and small and mid-cap stocks that have lagged over this cycle and are trading at historically low relative valuations.

“Equities are expected to stay strong despite slower growth, although questions remain as to whether tech fatigue may appear and the role China will play. Diversification and adaptability will be key tools for investors in 2024 amid significant national elections, especially in the US, and ongoing geopolitical challenges,” Brian O’Reilly, head of investment strategy at Mediolanum International Funds Limited, said.

MIFL is the Irish asset management company of Italy's Mediolanum Banking Group. It has more than €50 billion ($54 billion) assets under management as of January 2024, and more than 60 funds under management. See more coverage about MIFL here.