Financial markets are expected to face challenges in the second half of 2024, according to UBS. The biggest uncertainty is likely to come from the geopolitical level, with elections in the UK and France leading to a shift in power dynamics. The political situations in many Western democracies are as unclear as rarely before. In the US, voters remain polarized and the candidates offer contrasting views on various issues. Joe Biden's announcement that he will not run in the US presidential race may lead to a reshuffling of the cards. The US Federal Reserve may initiate the first rate cuts in the fall, which would buoy equity markets. UBS also highlights the importance of confirming the ambitious expectations of further rising corporate profits [24b361df].
Despite the challenges, UBS remains cautiously optimistic about the investment outlook. The bank emphasizes the need for investors to stay diversified and patient, balancing income from safe sources with growth exposure from risk assets. UBS also advises investors to focus on investing in high-quality bonds and U.S.-denominated debt instruments in emerging markets. Diversification across various assets is advised, with a greater emphasis on investing in cyclical stocks. The bank believes that the US equity market remains its top choice due to the country's continued growth and favorable investment environment. UBS also likes Indian and Chinese equities, as well as Japanese equities benefiting from structural reforms. Overall, UBS sees opportunities across asset classes due to the emerging growth cycle and regional divergences [eb02cf32].
UBS predicts a 3.5% dip in profits for Australian firms in 2024 as the post-pandemic boom fades. This forecasted decline is higher than the 2.9% drop experienced last year. Sectors like banking, consumer staples, and retail are expected to be most impacted. However, insurers may see improved profitability, and companies with US exposure could benefit from a weaker Australian dollar. UBS warns that stretched valuations could make broad-based share price increases challenging. Major miners like Rio Tinto, BHP Group, and Fortescue Metals Group will report earnings in the coming weeks. The broader economic landscape is shifting, with companies with international exposure potentially finding relief in emerging trends like a weaker Australian dollar. Strategic positioning and diversification are important for companies and investors navigating these changes [fa19f211].
Sebastian Mullins, Head of Multi-Asset & Fixed Income at Schroders, predicts that the US Federal Reserve (Fed) may cut rates up to three times before the end of the year. He remains positive on equities overall but expresses concern over stretched US equity valuations and extended market sentiment. Mullins believes that a Trump presidency could negatively impact big tech and result in tariffs on emerging markets. He notes that activity is improving in Europe and Asia and has upgraded European equities. In terms of credit, Mullins favors Australian and European corporate credit over the US due to relative valuations. He predicts that the US dollar (USD) will weaken as the Fed begins cutting rates and maintains a positive view on the Australian dollar and emerging market currencies [919ba39d].
Lombard Odier expects equity markets to stabilize ahead of the next US labor market report and the September US Federal Reserve meeting. Michael Strobaek, Global CIO at Lombard Odier, predicts that the Fed will cut interest rates at each of its remaining meetings this year. Strobaek is keeping equities at strategic asset allocation levels for now and favors UK equities. He expects the Swiss franc to remain strong and the Japanese yen to continue its path towards fair value over time. Strobaek sees the market setback as an opportunity to build exposure to the rethink longevity theme focused on population aging [b6b5055a].
UBS has compiled common questions on market volatility. CIO's overall view is unchanged, emphasizing the theme of "quality" in both bonds and equities. They expect quality bonds to deliver positive returns and recommend investors deploy excess cash into medium-duration quality fixed income. In equities, companies with strong balance sheets and exposure to structural growth drivers are well positioned. UBS maintains its year-end price target of 5900 for the S&P 500. They believe recession risks remain low and the US economy is heading for a soft landing. The US election could increase volatility, but other factors like economic data, Fed rate cuts, and earnings growth are larger market drivers. Strategic allocation changes based on the election alone are not advised, but managing election risks tactically is prudent [9ab4fc34].
Habib Bank AG Zurich's chief investment officer, Dr David Wartenweiler, provides insights into the market outlook for the remainder of 2024. The second half of 2024 may be more challenging for global financial markets. The US equity market is expensive and further rises require sustained earnings growth. Opportunities are seen in Japan and India, but caution is advised regarding Chinese assets. IT stocks are favored due to their robust fundamentals. In fixed income, value is seen in investment-grade corporate bonds and select emerging market issuers. Gold is the preferred hedge against volatility and unexpected US dollar weakness. Key risks in H2 2024 include disappointing corporate earnings, potential rebound of inflation, and political risks such as French elections and US elections. The GCC economies have been relatively stable, with opportunities in private equity and infrastructure investments. OPEC+ nations will boost production only if strong global demand threatens market stability. Habib Bank AG Zurich is seeing the biggest growth in its client base among high-net-worth individuals (HNWIs) and ultra-HNWIs, particularly those seeking wealth management and commercial banking services. The bank is also seeing an increase in interest from the next generation of clients who are focused on innovative financial solutions and sustainable investments. The bank's presence in the Dubai International Financial Centre (DIFC) has been a significant growth driver. The DIFC's strategic location and business-friendly environment have attracted high-net-worth individuals and families. The bank's commercial clients are also contributing to its growth, seeking offshore wealth services and international investment opportunities. The demand for sophisticated banking services and international investment opportunities underscores the importance of the bank's comprehensive approach to wealth management. [ad87f5b2]