24.01 Liontrust Views Winter 2024 - Flipbook - Page 6
A FORWARD
LOOK
Equity markets returned to positive territory
in 2023, with the odd exceptions such as
China and Hong Kong, after the rare sight
of both stock markets and bond markets
delivering negative returns in 2022. With
the exception of the UK, many markets
generated double digit returns in 2023, with
the US and global markets significantly driven
by the outstanding growth of the Magnificent
Seven technology companies – Apple,
Microsoft, Alphabet, Amazon, Nvidia, Meta
and Tesla. This was reflected in the Nasdaq
index being up by 45% last year.
If the past few years have taught us anything,
it is that we should not be shocked by the fact
there are events that surprise us. After all, no
plan survives contact with the enemy. With
this caveat, there are areas that investors
should consider for the year ahead. Other
than the impact of the ongoing conflicts,
one is when and how strongly will interest
rates fall, which will be shaped by the future
rate of inflation and economic growth. We
are still faced by the question of whether
inflation can be fully tamed without driving
global economies into recession.
represents good value, while UK small
caps have been particularly hard hit over
the last year, and we believe they are likely
to have greater potential for future growth
than large caps. The Japanese stock market
is still below the high it reached in 1989,
so despite its outstanding performance in
2023, we believe it still has some way to
go upwards. Asian and emerging market
economies should benefit from reductions
in US interest rates, pro-growth policies
in China and strong and favourable
demographics over the longer term.
Where do markets go from here after the
contrasting fortunes of the past two years?
Are we are at the start of a new tech cycle
or are many stocks and markets looking
expensive? Which markets and asset
classes offer the most value and potential
for growth going forward?
These issues are well known, however, and
are priced into markets. Furthermore, the
fears that pervaded in 2023 regarding a
deep recession have not materialised, while
inflation has been falling towards more
normal levels.
As always though, investors will still face
risks in 2024, which is why we are strong
advocates for diversification across markets,
asset classes and investment styles.
The first consideration for 2024 is the fact
that this is the year of the election. There
could be more than 40 major elections
around the world, including for president of
the US, Russia and Taiwan and, of course, a
general election in the UK, at a time of major
conflicts and strong geopolitical tensions. In
our view, it is a good rule of thumb, however,
not to base investment decisions on political
developments because of the relatively limited
impact of them on markets over the long term,
even with this degree of uncertainty.
6
LIONTRUST VIEWS – WINTER
We continue to believe markets are
attractive for disciplined investors. While
we are broadly neutral on fixed income,
we favour corporate bonds, and we
have a bias to equities, which we see as
offering attractive valuations on long-term
fundamentals. Within equities, we are
positioned for a recovery in small caps and
value stocks.
On a 12 to 18 month view, we favour the
UK, Japan, Asia ex-Japan and emerging
equity markets. The FTSE All Share index
Asset class outlook
When we are positive about an asset
class, we categorise it as ‘overweight’ and
may look to increase our allocation to it in
our portfolios. Conversely, when we are
negative about an asset class, we classify
it as ‘underweight’ and may reduce the
allocation. ‘Neutral’ means that we are
neither positive or negative.
The two areas where we have changed
weightings in the last quarter were:
• Investment grade corporate bonds
• Emerging market debt
