primebroker’S INVESTMENT OUTLOOK Q2 2024

Both large and small UK companies generate significant amounts of their earnings offshore and are historically cheap. Low valuations and defensive qualities are favourable in a slowing economy.

We are investing in US equities as they offer access to more resilient, diversified, and defensive business models and sectors. Despite valuations still being on the high side, quality shares are attractive as negativity increases.

Restrictive rates and energy risks remain a threat to the region’s economic growth. We don’t think the risk of a deeper downturn are currently priced in making the region relatively unattractive.

Japan’s economic environment has shown signs of improvement. Easy monetary policy has also seen a strong devaluation in the yen. The possibility of a sustained recovery is decent, and with a severely devalued yen we are mildly positive.

While Emerging Markets are likely to suffer more in the event of a global recession, they currently trade on attractive valuations.

China remains central to the investment case for this region. While governance, geopolitical concerns and property market woes are a negative, we see a possible rebound in asset prices given cheap valuations.

We are cyclically underweighting shares due to the potential for 'greater-than-expected' earnings disappointments due to a deteriorating economic outlook.

UK government bonds (gilts) have been through a sustained period of negative performance, as rates increased rapidly on the back of rises in inflation. With much of the rate hiking cycle behind us, gilts offer attractive upside potential with low downside risk.

US government bond yields have increased dramatically over the past year. We think they offer attractive upside potential and protection in the case of a recession. With much of the rate hiking cycle behind us, little downside risk remains.

We remain neutral as we continue to monitor the outlook for this asset class against a very uncertain geopolitical and economic backdrop, where strong European Central Bank (ECB) interest rate hikes have increased the risk of policy error.

Japanese bonds offer little income and remain severely distorted due to the Bank of Japan’s (BoJ) “Yield Curve Control” programme. While the BoJ might alter this program, there is little expectation for significant medium-term change.

While Emerging Markets government bonds offer a strong yield premium compared to Developed Markets, we remain slightly negative given the potential for a global recession, which would see a flight to safety to developed markets such as the US.

We are cautious on UK investment grade credit owing to tight spreads relative history and UK GILTs.

Our outlook for US investment grade credit has dimmed somewhat, as valuations have realigned with long-term averages.

We remain negative on European credit, owing to the many risks that remain, such as high inflation, weak growth, and geopolitical tensions.

Like Japanese government bonds, Japanese corporate bond prices offer very little income and are therefore unattractive.

We are positive on bonds due to the improved yield environment and defensive nature of bonds in a slowing and negative economic environment. We prefer government bonds over corporate bonds, which offer very little yield enhancement.

Companies focused on reducing their environmental impact often have a competitive advantage due to greater resource efficiency, leading to lower costs. They may also experience lower downside risks, due to more robust corporate governance and better management teams.

Global real estate offers attractive value, underpinned by improved rental income streams and high interest rates. Recent troubles in the banking sector, however, mean caution is needed.

The long-term outlook for Global Infrastructure remains positive, with a global need for advancement and investment. The asset class also offers exposure to stable revenue streams, which make it defensive in nature.

We are positive on alternatives over the long term.