World economies and monetary policies are diverging, but there are nascent signs of economic growth stabilisation. BEA Union Investment believes a gradual risk-on towards equities is possible. From an asset allocation perspective, BEA Union Investment favours equities, with a bias towards US growth equities. Asian and Chinese value stocks are relatively appealing.
US macro data continues to surprise the market on the upside: a resilient job market, stable corporate earnings and GDP growth. All signs are pointing towards a soft landing for the US economy. Headline inflation held steady, rising 3.7% in September from the previous year. Stripping out food and energy prices, US core CPI recorded an annual growth of 4.1%, easing from August. The jobless rate remained stable in September, but added 336,000 new jobs, sharply exceeding market expectations. BEA Union Investment believes the US economy is heading for a soft landing. In the face of elevated rates for an extended period, rates may only reverse course in the second quarter or second half of 2024.
Turning to Asia, Japan's second-quarter GDP growth was revised downwards to 4.8%, but the broader economy still expanded compared to the pre-pandemic era. China's recovery remains uninspiring, but the latest data prints, such as retail sales, came in stronger than expected. BEA Union Investment believes that to propel growth, the authorities will continue to adopt an accommodative monetary stance in the foreseeable future. In terms of other Asian emerging markets, the economic fundamentals of many countries have so far remained robust, facing milder inflationary pressure than that of the West, allowing central banks to put an end to their rate hike cycles. Among them, India's structural growth continues to stand out, with the country persistently delivering market-beating macro data.
Favour US equities on economic resilience; Japanese earnings upgrade will support equities
Peaking US rates bode well for Asian Investment Grade Bonds
Favour South Korean banks and Chinese TMT Investment Grade Bonds