Investment Team Handelsbanken Wealth & Asset Management
10 Dec 2024 15
Below, we outline some of our key views on the factors set to drive financial markets over the coming months, and what this means for our investment strategies.
What's next for the global economy and financial markets?
Economic resilience is encouraging, though we’re mindful of risks
Despite sharply rising interest rates around the world since the COVID-19 crisis, the global economy has remained surprisingly resilient. There are a number of reasons behind this, least not the ongoing boost provided by government economic support packages in response to the pandemic. The combined impact of these measures has been greater than previously anticipated, supporting economic health and consumer confidence for longer.
The US economy has been particularly robust. Looking ahead into 2025, support for this already upbeat (and highly influential) economy is likely to continue. President-elect Trump is expected to keep earlier tax cuts to avoid jolting the all-important US consumers, who have also been enjoying a surprisingly long-run financial buffer through previously built-up savings.
Central banks remain on the lookout for key signals
Generally declining inflation has allowed central banks to begin lowering interest rates in 2024, but there is still much further to go. A critical part of most leading central banks’ mandates includes managing inflation levels in the economy, but they will also be keeping a close eye on other key economic variables – most notably, the labour market.
In the US, demand for labour appears to be abating compared to the available supply of US workers – a somewhat uneasy economic signal. It’s certainly possible that these dynamics develop slowly enough that they are ultimately overtaken by other issues. We’ll be keeping a close eye on the labour market situation, mindful of its potential impact on the outlook for unemployment, consumption and general economic health.
Financial markets have been enjoying this environment
2024 was a much better year for financial returns, from a wide range of asset types, than 2022-2023. Financial markets have welcomed relatively calm economic growth, lower inflation and falling interest rates. While nothing in economics or financial markets is ever static or certain, this feels suspiciously like the ‘soft landing’ that central banks were hoping for.
Our views on the current environment mean that our investment positioning between different types of assets has shifted slightly, as we outline further down the page. We have slightly increased our positions in stock markets, and have slightly reduced our positions in government bond markets. These are relatively small shifts in the balance of assets in our strategies, and we would always expect this balance to be in flux as different opportunities rise and fade.
Our chart of the month
Source: Bloomberg.
What does this chart tell us?
This chart shows the unemployment rate in the US over time. For months, we’ve been watching for any cracks in the US labour market, which has been remarkably robust. Even so, we can see that the unemployment rate is rising – albeit at a moderate pace.
While we aim to make the most of the current buoyancy in the economy and financial markets, we’re mindful that the jobs market can turn quite suddenly in recessionary conditions. We’ll continue to watch closely for any signs of change.
Scroll down the page to the sections below to find out what our market views mean for positioning in our investment strategies.
- We have slightly shifted the balance of assets held in our multi asset strategies, which has resulted in our strategies holding slightly more in stock market investments than at the time of our last Investment Views update.
- We favour the shares of larger businesses, as well as positions in healthcare, insurance and clean energy.
- With a few key exceptions, we currently prefer to limit the bulk of our stock market exposure to developed economies.
At the time of this update, we are slightly 'overweight' stock markets/shares. This means that we have deviated for tactical reasons from our asset allocation framework - a way of dividing investments across different types of assets. As a result, our multi asset strategies currently hold a relatively larger proportion of investments in bonds versus our long-term average.
We have slightly shifted the balance of assets held in our multi asset strategies, which has resulted in our strategies holding slightly less in bond market investments than at the time of our last Investment Views update.
Having been a rather uninteresting part of financial markets for quite some time, bond yields rose higher in 2023 than they had done for many years (and bond prices, which always move in the opposite direction to yields, fell). This presented what we perceived to be an attractive buying opportunity.
We still think bonds look attractive over the long-term, with yields at meaningfully higher levels than any point in recent years. However, rising government debt (and the subsequently higher supply of government debt to the market) is among the factors giving us pause for thought.
At the time of this update, we are 'neutral' when it comes to bond markets. This means that we have not deviated for tactical reasons from our overall asset allocation framework - a way of dividing investments across different types of assets. As a result, our multi asset strategies currently hold a proportion of investments in stock markets which is consistent with our long-term average.
- The ‘alternative’ investment space covers a diverse range of assets outside of traditional bond and stock markets, from commercial property to specialist hedge funds. Because of their wide variety, it’s difficult to make sweeping statements about alternative assets, and our overall ‘underweight’ stance in this diverse area of the markets hides some specific preferences.
- At present, we have a preference for assets which can drive financial returns, without being closely linked to mainstream financial markets. Among our positions in property investments, we have a preference for global assets over UK-based assets, believing that this allows us to access a much more diverse array of property, from data centres to telecoms towers. Other notable positions include a specialist hedge fund designed to protect against dramatic market falls.
At the time of this update, we are slightly 'underweight' alternative assets. This means that we have deviated for tactical reasons from our asset allocation framework - a way of dividing investments across different types of assets. As a result, our multi asset strategies currently hold a relatively smaller proportion of investments in alternative assets versus our long-term average.
If you’d like further information on how we divide investments in our strategies across different types of assets (i.e. our asset allocation framework, and our tactical deviations away from it), please contact us.