2024 Q2 Outlook: Extended Rally
Riding on hopes over interest rates cuts and economic soft landing, global stock markets edged up higher during first quarter of 2024. AI frenzy boosted US market further led by AI related semiconductor sectors, while in Japan the reflationary trend helped to bring the Nikkei index to historical high. With 10-year benchmark US Treasury yield tapered off to about 4% level from the highs of around 5% last year, US dollar index softened, gold and cryptos reached new highs while oil price hovered at around USD75-80 per barrel on rising geopolitical tensions in the Middle East. Soft economic figures amid sluggish property market still overhung Chinese Mainland and Hong Kong SAR stock markets, but a series of stimulus measures helped to stabilize capital markets.
Looking ahead, we remained cautious with the sticky core inflation in US and Europe, we expect rate cuts may delay into second half of the year with the magnitude of rate cuts within 50-75bps. In Japan, market is aware of whether the wage price spiral will keep core inflation at above 2% level for a prolong period, and the medium-term impact to the overall economy and capital market after the Bank of Japan (BOJ) exited the negative interest rate and Yield Curve Control (YCC) regime. In Chinese Mainland and Hong Kong SAR, more evidence of reflation and stabilizing economic growth are crucial to pave the way for a recovery.
Fixed Income
We reiterate normalization of monetary policy to remain the major investment theme, we continue to focus on medium term US treasury and developed market high investment grade bonds.
Stock
In equities our core strategy remained value, disruptive technology i.e. AI and robotics, ESG, sustainable growth i.e. healthcare and defensive dividends. We think the AI rally may extend from semiconductors to other related sectors such as data centers and energy.
Alternatives
We also like alternatives i.e. functional real estate, hedge funds, private credits to enhance long-term returns and manage market volatility.
Gold
Gold had reached our target price at USD2,150 per ounce and we expect gold may extend its rally further on weakening USD, as well as a hedge against geopolitical risks amid rising central bank demand. We reiterate a diversified and sustainable portfolio to achieve long-term risk adjusted return.
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“2024 Q2 Outlook: Extended Rally” includes the following key points:
1. Market expects BOJ may normalize its interest rate further next year should inflation hover at above the 2% official target for a prolong period of time. What will be the short-term impact of this action? What impact will the higher volatility of yen and interest rates, as well as the scale of yen-based carry trade have on global liquidity over the next few quarters?
2. During current extended technology rally, AI software applications lag behind AI hardware. What are the reasons behind this? If investors want to discern pearls with a keen eye, which areas of AI software are worth investing in?
3. If Trump comes back to power, what impact will he have on Chinese companies? For A-shares, whose risk premiums are at historically high levels, will it be even worse?
4. Ongoing wars pose inflationary risks to the world economy. What types of assets should investors hold in their portfolios to hedge against geopolitical and inflationary risks?
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For more information, please contact us: ops@dl-family.com to obtain the full text of “2024 Q2 Outlook: Extended Rally”.
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Delin Holdings is a financial services group headquartered in Hong Kong. It holds SFC license No. 1/4/6/9 and provides global family wealth management and investment banking services to ultra-high net worth families.
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