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Δ Overweight     ∇ Underweight    — Neutral

Equity – at a glance     —

2 SEPTEMBER 2024

• We downgrade equities to Neutral, expecting the asset class to perform in line with bonds. The Fed pivot is supportive, balanced by risks from the US elections and the slowdown in the labour market. That said, US equities remain our most preferred region, as companies continue to demonstrate solid long-term growth in earnings and the recent market shakedown creates pockets of opportunities in the growth space related to AI.
  
• We upgrade UK equities to a core holding (Neutral), with cheap valuation, improving activity data and the catalyst of a strong and pro-business Labour government. However, it lacks growth exposure in its index composition. Japan equities remain a core holding (Neutral). The Bank of Japan is gradually normalising its rate policies, which is a headwind for equities. Its technicals also remain weak. This is offset by the structural improvement in companies’ corporate governance.
  
• We have a core holding (Neutral) view on Asia ex-Japan equities. Within the region, we remain Overweight Indian equities, with its healthy mix of economic growth and consumption trend. Taiwan and Korea equities are core holdings (Neutral), with tailwinds from the AI theme balanced by expensive valuations versus history. China equities stay as a core holding (Neutral), with piece-meal policy support and mixed earnings. We are Neutral onshore versus offshore equities. We remain Underweight on ASEAN, which is overly defensive. Finally, we downgrade Europe ex-UK equities to least preferred. Despite cheap valuation, there is headwind from the slowdown in growth and earnings. It is also exposed to the weakness in China and potential tariffs if Trump gets into power.
  

North America equities – Preferred holding     Δ

2 SEPTEMBER 2024

The bullish case:

• Strong earnings growth
• Room for rate cuts

The bearish case:

• Elevated valuations

Europe ex-UK equities – Less Preferred holding     ∇

2 SEPTEMBER 2024

The bullish case:

• Inexpensive relative valuations
• Improving growth

The bearish case:

• Political/election risk

UK equities – Core holding     —

2 SEPTEMBER 2024

The bullish case:

• Attractive valuations
• Dividend yield

The bearish case:

• Low earnings growth
• Political uncertainty

Japan Equities – Core holding     —

2 SEPTEMBER 2024

The bullish case:

• Reasonable valuations
• Rising dividends/share buybacks

The bearish case:

• Expected JPY strength

Asia ex-Japan equities – Core holding     —

2 SEPTEMBER 2024

The bullish case:

• Earnings rebound
• China policy support

The bearish case:

• China structural growth concerns

Δ Overweight     ∇ Underweight    — Neutral

Bonds – at a glance     —

2 SEPTEMBER 2024

• We are Neutral both government and corporate/EM bonds. We view Developed Market (DM) Investment Grade (IG) government bonds as a core holding (Neutral) amid softer DM growth and employment data. In our view, US election uncertainty and a lingering risk of hard landing could move yields lower. Thus, we move our 3-month target of the US 10-year bond yield lower to 3.75-4.00%.
  
• Although rate cuts provide the prospect of capital gains on bonds, we believe picking where one takes this exposure to rate-sensitive bonds is key. We therefore maintain an Overweight allocation on Emerging Market USD government bonds, where we see attractive relative value compared with DM peers in addition to sensitivity to falling yields. To balance this, we move DM IG corporate bonds holdings to Underweight, especially given the currently tight yield premiums. Meanwhile, we continue to view DM High Yield (HY) corporate bonds as a core holding (Neutral) for their solid fundamentals and likely performance in a soft-landing scenario. We raise EM local currency government bonds to a core holding (Neutral) as they offer decent carry amid stable EM currencies, as we anticipate the USD to weaken only modestly in the next 6-12 months. Additionally, Asia USD bonds remain a core holding (Neutral) and we now hold a balanced view on IG versus HY bonds.
  

Developed Market Investment Grade government bonds – Core holding     —

2 SEPTEMBER 2024

The bullish case:

• High credit quality
• Attractive yields

The bearish case:

• High sensitivity to monetary policy

Developed Market Investment Grade corporate bonds – Less Preferred holding     ∇

2 SEPTEMBER 2024

The bullish case:

• High credit quality
• Sensitive to falling yields

The bearish case:

• Elevated valuations

Developed Market High Yield corporate bonds – Core holding     —

2 SEPTEMBER 2024

The bullish case:

• Attractive yield
• Low rate sensitivity

The bearish case:

• Elevated valuations
• Sensitive to growth

Emerging Market USD government bonds – Preferred holding     Δ

2 SEPTEMBER 2024

The bullish case:

• Attractive yield
• Sensitive to US rates

The bearish case:

• Commodity prices

Emerging Market Local currency government bonds – Core holding     —

2 SEPTEMBER 2024

The bullish case:

• Attractive yield
• Room for policy rate cuts

The bearish case:

• USD strength

Asia USD bonds – Core holding    —

2 SEPTEMBER 2024

The bullish case:

• Moderate yield
• Policy support

The bearish case:

• China structural growth concerns

Δ Overweight     ∇ Underweight    — Neutral

Commodities – at a glance     

2 SEPTEMBER 2024

• We raise our 3- and 12-month gold forecast to USD 2,550/oz and USD 2,625/oz, respectively, led by falling interest rates. Consequently, we also upgrade the shiny metal to an Overweight relative to other major asset classes. July’s easing inflation and jobs data, coupled with Powell’s dovish signal at the Jackson Hole summit, suggest the Fed cutting cycle is on the horizon. The ensuing lower real (net-of-inflation) yields and USD weakness augur well for the metal, especially with the strengthening of the negative gold-real yield correlation. The upshot is that the recent pickup in momentum for gold ETF inflows could extend. In India, there were signs of higher consumer demand following the reduction in taxes. Meanwhile, India’s central bank continued its measured pace of gold purchases, adding to the still-robust official sector demand. Gold is now its second largest reserve asset, after surpassing the EUR recently, but there is still room for catch up to the USD which retains the largest share.
  
• We trim our 12-month WTI oil forecast to USD 73/bbl, reflecting the weakening demand trends. The oil markets were quick to fade the geopolitical risk premium, as a string of slowing US and China economic growth data brought demand fears to the forefront. We expect global oil demand to normalise into 2025 as economic growth slows from the post-pandemic boom. We still assume that OPEC+ would start tapering production cuts in Q4, though the bloc would calibrate the pace to avoid a collapse in oil prices. On balance, our base case looks for oil prices to decline modestly in the next 12 months. In the short run, WTI oil price is likely to trade at around USD 75/bbl as demand-supply dynamics remain tight, especially after the Libya turmoil.
  

Gold      —

2 SEPTEMBER 2024

The bullish case:

• Portfolio hedge
• Central bank demand
• Falling real rates

The bearish case:

• Resilient USD

Crude Oil

2 SEPTEMBER 2024

The bullish case:

• Resilient global economies
• Supply reduction from geopolitical conflicts
• OPEC+ supply cuts
• Low inventories
• US shale underinvestment
• US SPR refill

The bearish case:

• Tight monetary policies; growth slowdown
• Redirection of Russian oil flows
• Easing of sanctions against Venezuela
• Significant global spare capacity
• OPEC+ supply discipline
• Lower demand from energy transition

Δ Overweight     ∇ Underweight    — Neutral

Alternatives at a glance     —

2 SEPTEMBER 2024

The bullish case:

• Diversifier characteristics

The bearish case:

• Equity, corporate bond volatility

Δ Overweight     ∇ Underweight    — Neutral

Multi-Asset – at a glance

2 SEPTEMBER 2024

• Our Multi-Asset Income (MAI) model allocation has delivered 4.4% YTD return. The model benefitted from optimism surrounding risk assets, and dividend equities also benefitted from a broadening of the rally in traditional equities. Developed Market High Yield (DM HY) and leveraged loans gained from a strong corporate earnings season, while EM USD government bonds benefitted from a decline in US government bond yields.
  
• Our MAI model now yields c.5.8%, dipping below the 6% mark for the first time this year. In recent weeks, major central banks, including the Swiss National Bank (SNB) and the European Central Bank (ECB), have initiated their rate cutting cycle, while the Fed has guided for one rate cut this year. We expect the ECB to deliver more rate cuts this year (see the macro section for more details), and the Fed to be more cautious in order not to loosen financial conditions prematurely while economic data remains resilient. We believe yield levels are attractive for income-focused investors to lock in the current high yield on offer.
  
• Over the next 6-to-12 months, the 2024 US elections will be closely watched by markets. History suggests income assets tend to deliver positive returns during US election years, regardless of whether the Fed is cutting or hiking rates. The only exceptions were REITs and Europe high dividend equities, which delivered negative returns in the 2020 pandemic election year.