“We believe in a rather mild economic development, which will benefit corporate bonds and primarily European ones,” he added. Their returns continue to be high. Default rates are, however, expected to remain low as long as there are no major negative surprises in the course of the economic cycle.
 
“Equities have clearly shown that they can serve as a good vehicle to mitigate the impact of inflation for investors. We have clearly seen how corporations with strong business models were able to use their pricing power to keep profits high in times of dwindling volume demand,” he continued. 

Jesch said that equities additionally imply options on innovations. Probably the most prominent recent example is the progress made in artificial intelligence (AI) which has triggered price fireworks in selected technology stocks.
 
Asian, European equities favoured over US     
Over a period of 12 months, Asian and European stock markets appear to be much more promising than the US market, the firm continued. Europe is primarily supported by positive earnings revisions, and Asia, particularly its emerging markets, by the expected two-digit growth of corporate earnings in 2024, the firm said. US stocks might be particularly burdened by the expected higher yields of 10-year US bonds, which might exert pressure on stock valuations, i.e. price/earnings ratios.

The asset manager said that the Japanese stock market has been among the top performers in the current year – meanwhile, it has almost returned to the high levels of 1989 and 1990. 

“Unlike roughly 30 years ago, valuations are far from being as exaggerated as they used to be back then. Generally speaking, Japanese stocks allow investors to become part of the Asian growth story,” equity fund manager Daniela Gobert said. 

The firm believes that the opening of the Chinese and domestic economies as well as the return of tourists should have a positive impact. This means that in the medium term Japan should be a quite interesting market for investors, even if prices have already had a good run in the short term. See here for other articles about Japan.

In Europe, the asset manager favours European small- to mid-caps. Their performance up to now has been below average, their valuation is roughly 20 per cent below the average of the past 15 years. These stocks thus incorporate quite a high catch-up potential.
 
Emerging markets: Asian equities promising
The firm highlighted how Asian stock markets have been clear laggards this year which has been quite successful for equities so far. It believes that this will change. For 2024, it expects a strong, clearly two-digit growth of corporate earnings. Over a 12-month horizon, Asian equities offer the highest total return potential. The target for the MSCI Asia ex Japan by June 2024 is 680 points, the firm said.
 
Bonds back in multi-asset portfolios
“The positive market performance up to now should not mislead us into euphoria,” Christoph Schmidt, head of the DWS Total Return team, added. "The full impact of recent rate hikes has not yet fully unfolded, the risk of an economic slowdown might be underestimated. We reacted to this situation by changing the allocation in our multi-asset portfolio,” he said. 

“From the viewpoint of diversification, we no longer only bet on corporate bonds, which have been in focus since the end of last year. Since the start of this year, we have also added sovereign bonds, since they should once again take over their classical role of a safe haven,” he continued. Schmidt also relies on gold and currencies such as the dollar. In spite of the looming economic slowdown, he favours selected cyclical stocks too, such as the beneficiaries of the energy transition, which moreover followed their own structural trend and not immediately that of the overall economic cycle.