M&G has warned investors to expect a ‘bumpy path and turbulence’ in the second half of 2024.
In its mid-year CIO outlook, the asset manager said it sees political uncertainty and interest rate cuts as the major things to watch.
It is not necessarily bad news though, with the volatility potentially creating opportunities for long term investors.
In the outlook dubbed Descent from the peak, M&G pulled in views from its specialists in equities, fixed income and private markets.
Fabiana Fedeli, CIO, equities, multi asset and sustainability, said the current backdrop is also still favourable for equity markets but selectivity remains key as always.
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“After strong overall performance, the market is broadening and becoming more stock specific,” she added. “In the recent earnings season, even within the same sectors, there were companies able to stand out and differentiate themselves, while others were left behind. Companies able to innovate and evolve in line with customers changing needs, and increasingly discerning spending patterns, are being rewarded by the market.”
On the fixed income side, CIO Jim Leaviss, who is departing to pursue academic interests, noted that inflation moving in the right direction provides support for the prospect of rate cuts by the Federal Reserve this year. These cuts could be an opportunity for fixed income investors to capture potentially attractive gains.
Richard Woolnough, manager of the Optimal Income strategy, added the current rates-inflation dynamic represents an attractive risk-reward opportunity to invest in duration-bearing assets, such as US government bonds.
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However, there are ‘potential obstacles’ on the road to lower rates, including a resilient economy, a strong jobs market, and the forthcoming US presidential election. Woolnough warned we might see a resurgence of inflation, particularly as both presidential candidates are talking about increasing tariffs.
Private markets are also a key part of the picture from M&G’s perspective. CIO Emmanuel Deblanc noted the most significant issue impacting many private markets has been the rise in real interest rates.
While higher rates reduce distributions to investors and put pressure on valuations, he noted, Deblanc believes that over the long term this has been positive for private markets as it avoids the misallocation of capital, which is fundamental in correctly pricing assets.
He added that in the second half he expects opportunities persist in the ‘value-add’ and opportunistic areas of private markets, such as real estate and infrastructure.
