A year of two halves: Brown Shipley discusses investment outlook during Edinburgh events

Kenny Cummings and Sandra Dailidyte

BROWN Shipley, a Quintet Private Bank, hosted exclusive events attended by its clients at the Gleneagles Townhouse in Edinburgh to discuss its views on the global economy, financial markets and key asset classes. The events, which took place on 7 & 8 February 2024, were hosted by Mark Flynn, Head of Brown Shipley Scotland, and Daniele Antonucci, Chief Investment Officer at Quintet Private Bank, parent of Brown Shipley.

Flynn said: “We are very pleased to share our views on the markets with our clients, who trust us to help them look after their wealth as long-term investors with a focus on quality growth.”

Antonucci said: “We expect this to be a year of two halves: following a 12-month period marked by numerous interest-rate hikes and sustained high inflation, global economic growth will decelerate in the first half of 2024. By mid-year, amidst slower growth and reduced inflationary pressure, central banks will seize the opportunity to begin cutting interest rates, supporting a broad-based recovery over the second half of 2024 and beyond.

“High-quality bonds continue to look appealing as we believe the current central-bank rate-hiking cycle is over, with possible rate reductions from mid-2024.” Antonucci sees bond yields as currently attractive and notes that they may offer a cushion should the economic outlook deteriorate beyond expectations. Conversely, riskier credit looks unattractive as it may suffer due to tight financial conditions and valuations that do not reflect the risk of an increase in default rates.

“We’re maintaining our slightly conservative stance and preference for low-volatility stocks, particularly in Europe given its weak economic conditions. However, we’re moderating our cautious outlook as interest rates have peaked and the markets have already factored in a moderate slowdown” added Antonucci. “The adjustment translates into an increased allocation to equities in line with our long-term asset allocation strategy. We’re also adding exposure to UK and developed Pacific ex-Japan equities alongside quality US shares and smaller companies poised to benefit from a stronger-than-anticipated economy. Our objective is to enhance regional diversification and potentially tap into diverse growth dynamics. In contrast, emerging-market equities currently carry heightened risk levels that aren’t fully justified by their relatively low valuations,” Antonucci said.

At the same time, increasing exposure to commodities may provide additional levers to protect against inflationary pressure, especially in the near term, as well as heightened geopolitical risk. Notably, this excludes increasing exposure to gold, which Antonucci says currently appears somewhat overvalued relative to other safe-haven assets.

Antonucci expects that the US dollar could weaken, albeit moderately, over the course of 2024. “US Federal Reserve rate cuts, slightly widening fiscal and trade deficits, and persistent US dollar overvaluation could all weigh on the greenback,” he said. “As growth begins to rebound in the second half of the year, risk sentiment could also improve – supporting the euro and the pound sterling. However, we expect any US dollar weakness to be limited given that the European Central Bank and Bank of England will likely also begin cutting rates in the second half of 2024.”

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