Uncertainties like a path for inflation (hence interest rates) and the potential for further geopolitical turbulence cloud prospects for the global economy. Seema Shah, Chief Global Strategist recently asked experts for views on a likely path for the global economy and to forecast challenges and opportunities investors will face in 2024.

Key takeaways

  • Real estate may be characterized by a shift from a defensive posture in the first half of 2024 to an offensive stance in the second half of the year due to anticipated interest rate cuts.

  • Fixed income offers appealing yields once again, prompting borrowers to adapt to higher interest rates and lenders to reconsider their strategy.

  • Equity investors can remain cautiously optimistic with careful stock selection, despite expiring tax provisions and the debt-limit deal in 2025 posing a challenge for the 2024 U.S. presidential election winner.

  • The balancing act facing central banks involves a quandary of when and by how much to cut rates considering risks of reflating the economy and triggering inflation.

  • Despite rising interest rates, technology stocks like the 'Magnificent Seven' thrived; further gains may be assessed by delving into their financial results and potential for growth.

2024 global economic outlook and what it means for investors

The old saying ‘Man plans, and God laughs’ proved true once again in 2023. Although interest rates rose, as expected, to combat inflationary pressures, the resilience of the U.S. economy to higher borrowing costs and the magnitude of geopolitical risks facing markets proved surprising. Looking forward, our investment professionals identified key economic themes likely to influence financial markets in 2024.

Switching from defense to offense

To use a well-known sporting analogy, 2024 will be ‘a year of two halves’, says Indraneel Karlekar, Global Head of Research and Portfolio Strategies, Real Estate. His outlook is based on a belief that the Federal Reserve (Fed) will start cutting interest rates in the second half of the year. Consequently, Indy plans to adopt a defensive posture in real-estate portfolios during the first six months. The focus will be on real estate debt where income is very attractive and where creditors are near the top of the list for any payouts in the event of a default.

‘We will then begin to tilt to a more offensive stance as values start to bottom out at what could be very appealing levels’, Indy adds. The unknowns, of course, are how deep and fast the Fed will cut and implications for the cost of debt capital and lending spreads.

Adjusting to the reality of higher interest rates

Equities and fixed income experienced sharply contrasting fortunes in recent years. Equities enjoyed a decade-long bull run supported by easy money, while historically low interest rates undermined the appeal of fixed income. The wheel has now turned and once again, fixed income offers appealing yields.

However, Howe Chung Wan, Head of Asia Fixed Income believes both borrowers and lenders only started to adjust to the impact of higher interest rates. He expects borrowers to adapt in the near future as ‘higher interest rates may start to bite,’ and being one of the factors thrusting the economy into a slowdown. Lenders, by contrast, will take longer to rethink their strategy, says Howe. He argues ‘pension funds, insurance companies, and other institutions need to reconsider their approach to returns, and that involves recalibrating asset allocation between fixed income and risk assets.’

Should investors be concerned about the fiscal cliff?

Whoever wins the 2024 U.S. presidential election will immediately be tested by expiring tax provisions in 2025 along with this year’s debt-limit deal, which ends at the start of 2025. With fault lines between the Republicans and Democrats appearing to grow wider, reaching an agreement that can steer the economy clear of a fiscal cliff could prove tricky.

However, Christopher Leow, CEO and CIO Singapore, Equities believes markets already priced in most risks and equity investors, while remaining alert to the threat, can be ‘cautiously optimistic’ about the outlook if they focus on careful stock selection. The narrow performance of technology stocks this year highlights the importance of targeting the right stocks, says Christopher. Investors who simply focus on a technology index probably would not see the full benefit of the enormous gains racked up by a handful of stocks in 2023.

In general, Christopher focuses on equities where the underlying business model is transparent and durable, and ideally will benefit from a secular trend. Businesses able to sell to ultra-affluent consumers, for example, could find protection from an unclear economic outlook and pressures bearing down on lower-income consumers. Christopher pointed out a recent visit to a luxury car maker that highlighted advantages accruing from a superlative brand, pricing power, and innovation.

The difficult balancing act facing central banks

Our investment professionals believe once central banks tilt towards cutting rates, investment inflows could surge. Easing monetary policy too far and too fast, as Seema points out, risks reflating the economy and triggering another bout of inflation. The quandary of when to cut and by how much, Indy says, is the million-dollar question—or questions, to be more accurate—facing central banks. It is why U.S. Fed Chair Jay Powell always walks a fine line between sounding hawkish on inflation and simultaneously acknowledging fears about a hard landing if the monetary brakes are applied too hard.

Consequently, interest rates are likely to come down slowly (in small increments), rather than monthly 100-basis- point cuts, believes Indy—unless the U.S. economy falls into a much worse-than-anticipated recession and unemployment spikes. The European Central Bank (ECB) may follow a similar path. Globally, inflation could prove ‘lumpy’ in the coming months but afterwards should start to ease. Just how quickly, depends on factors such as wage growth.

Indy believes risk appetite will pick up once the rate-cutting cycle is underway, but investors will be selective. He explains, ‘They won’t simply pile into offices but will eye more rate-sensitive areas, such as growth-oriented property types like apartments and industrial units, which could see a sudden inflow of capital.’

Can artificial intelligence (AI) and other technology stocks continue to defy gravity?

The ‘Magnificent Seven’ (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) enjoyed a tremendous year despite rising interest rates, which traditionally, is a strong headwind for growth companies. Christopher believes it pays to delve into results of these companies to establish whether further gains are in the cards. He cites the case of an AI chip maker whose stock price tripled over the first 11 months of 2023.

Finding a clear route ahead

Overall, our senior investors are cautiously optimistic about prospects for financial markets in 2024. They hope much of the current uncertainty surrounding the macro-economic outlook and geopolitics will resolve next year and a soft landing can be achieved. Clarity on the direction of interest rates will be vital in giving investors renewed confidence in an outlook for the global economy and hence financial markets.


Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results.

Views and opinions expressed are accurate as of the date of this communication and are subject to change without notice. This material may contain ‘forward-looking’ information that is not purely historical in nature and may include, among other things, projections, and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

The information in the article should not be construed as investment advice or a recommendation for the purchase or sale of any security. The general information it contains does not take account of any investor’s investment objectives, particular needs, or financial situation.

12/2023 | 3246813-062024

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