Global equities face headwinds as we enter 2024.

The most prominent headwinds stem from the interest rate changes we have seen in recent years. They have impacted corporate financing costs, economic growth expectations, and the relative appeal of equities versus fixed income. Taken together, the expectation is that global equity performance will be below its long-term median of 15% in 2024. Still, Investment Managers do not believe they should ‘underweight’ equities and ‘overweight’ fixed income relative to policy allocations, they see better tactical opportunities within equities and fixed income.

The Q4 rally of 2023 was largely based on easing financial conditions and expectations of a soft or no landing in 2024. There is a disconnect between valuations in some segments and earnings potential, which raises risks of de-ratings.

However, select markets such as Europe may benefit from peaking rates and bottoming out of economic activity. Managers remain selective and explore value, and quality names in DM (US, Europe, Japan) and EM. Managers also see opportunities within fixed income to add protection.  Equity Markets can continue to benefit from a policy “sweet spot” in which a mixed growth picture and disinflation have allowed the liquidity backdrop to dominate.