Global Outlook & Strategy

Each quarter Providence publishes a Global Outlook and Strategy. This is our formal document that articulates our current views of the market and how we are positioning clients’ portfolios accordingly.

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January 30, 2024

Past the Peak - Global Outlook & Strategy Q1, 2024

With investment markets looking past peak inflation and interest rates, there were some meaningful changes during the fourth quarter. Participants adopted the ‘soft-landing’ narrative
for the US economy as a central scenario, having previously been concerned that it was an unlikely outcome. In Japan there continues to be some positive developments around the end of deflation, a reinvigorated/reforming corporate sector and the Bank of Japan remaining quite accommodative. In Europe there are concerns about structural issues in Germany, whose
largest customer China has been reasonably weak. However peripheral European economies have been performing quite well. The weakness in the Chinese economy and their real estate
sector has weighed on the Chinese stock market.

There remain concerns about geopolitics. These include a substantial proportion of the global population (46%) having elections that could result in meaningful changes in economic and foreign policy, the current wars in the Middle East and Ukraine, and the lingering concerns around China’s aspirations to reunify Taiwan. Another two concerns for the list would be the arrival of the long-awaited recession in the US (at a point in time where markets have this as a low probability outcome), and central banks failing to ease to the extent that is currently priced into markets.

Whilst there will be ebbs and flows in the direction of markets, we are always alert to risks. It does seem that there are some positive economic and financial dynamics for investment
markets in the period ahead.

KEY POINTS

• Inflation coming down in the US and Europe has provided a runway for the Federal Reserve and the ECB to step back from what is now judged to be an overly cautious monetary stance. Market expectations around future easing of policy led to a strong finish to the year for investment markets.

• We remain excited about the opportunities in the period ahead and see the potential positive disinflation/monetary dynamic as supportive for markets.

• Equity markets should start to broaden out in performance as earnings recover and the ‘soft landing’ narrative is adopted by investors. This should help asset classes with attractive relative valuations, such as mid cap global equities, Japanese equities and European equities.

• Now is the time to focus on harvesting yield in the portfolios as a modest default cycle coupled with declining interest rates should support returns.

Global Outlook & Strategy
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