We are entering a new era. The year 2024 will be unpredictable and clouded by many uncertainties. It will be marked by geopolitical risks, the ongoing taming of the inflation beast, and how the US Presidential election will impact markets. In this structurally different world, where higher interest rates define markets, the consensus among many investors is that volatility will continue to reign supreme.
Against this backdrop, in our view active investing will take centre stage as investors seek to capitalise on opportunities to generate returns. Our investments teams are navigating the course with caution, actively uncovering pockets of opportunity, as they position portfolios for potential upside gains while managing downside risks.
First Sentier Investors’ asset class experts share their views on how they’re thinking about 2024.
The inflation conundrum
Throughout 2023, central banks faced tough challenges in taming inflation. While many predicted a recession, the reality is that markets may be in for a softer landing and how central banks respond is unclear.
Providing a perspective on Asia, Nigel Foo, Head of Asia Fixed Income said, “There are clear signs that inflation will continue trending lower unless food and energy inflation causes a spike. However, central banks will have more flexibility to pause rate hikes or cut rates to spur growth, should the need arise.”
“Despite short-term challenges in China, our view is that the Chinese government will remain steadfast in seeing its policies through and to push the economy into achieving higher-quality growth.”
Bonds back as the great diversifier
“We believe fixed income now measures up more favourably against other asset classes,” said Foo.
“The income component of Asian Investment Grade Credits have strong yields relative to the last few years, making it more appealing for investors who were previously grappling with historically low coupons. We believe these will continue to perform well next year as fundamentals remain sound. Similarly, opportunities in Asian High Yield look promising as distressed names are now in more advanced stages of restructuring. We expect upsides from such recoveries to be attractive from a risk-reward perspective.”
Infrastructure: a story of structural growth
Peter Meany, Head of Global Listed Infrastructure, said the outlook for the sector was positive, “Earnings growth for critical infrastructure assets are likely to be underpinned by several growth drivers in 2024 and beyond. We are optimistic about the substantial investment opportunities associated with the energy transition but there are also themes like solving for urban congestion, and digitalisation, which we expect will add value long into the future.”
“Currently, we see real value in sectors like US utilities and toll roads, where the market has underestimated the potential of these assets. We see opportunities to buy into long-term structural themes at an attractive price point and with many governments hamstrung by debt following the pandemic, we expect that the private sector will be called upon to drive further investment in this area in the years ahead,” Meany said.
These structural growth drivers extend to direct infrastructure.
A convergence of responsible investment issues
“We are increasingly seeing how responsible investment areas are converging,” said Kate Turner, Global Head of Responsible Investment.
“We cannot look at climate change as a standalone issue. As droughts, floods and other extreme weather batter the globe, thousands of the poorest populations are being forced to flee their homes and livelihoods. A key risk for displaced people is falling victim to modern slavery situations such as forced labour. Human rights are also bound up in the decarbonisation of the global economy.”
“The transition to a low-carbon economy is urgent and important, but we must also ensure it is a just transition. Governments, companies and investors must aim to ensure there is decent and fair work for everyone, as we decarbonise the world,” Turner said.
Read our latest insights
The information contained within this material is generic in nature and does not contain or constitute investment or investment product advice. The information has been obtained from sources that First Sentier Investors (“FSI”) believes to be reliable and accurate at the time of issue but no representation or warranty, expressed or implied, is made as to the fairness, accuracy, completeness or correctness of the information. To the extent permitted by law, neither FSI, nor any of its associates, nor any director, officer or employee accepts any liability whatsoever for any loss arising directly or indirectly from any use of this material.
This material has been prepared for general information purpose. It does not purport to be comprehensive or to render special advice. The views expressed herein are the views of the writer at the time of issue and not necessarily views of FSI. Such views may change over time. This is not an offer document, and does not constitute an investment recommendation. No person should rely on the content and/or act on the basis of any matter contained in this material without obtaining specific professional advice. The information in this material may not be reproduced in whole or in part or circulated without the prior consent of FSI. This material shall only be used and/or received in accordance with the applicable laws in the relevant jurisdiction.
In Hong Kong, this material is issued by First Sentier Investors (Hong Kong) Limited and has not been reviewed by the Securities & Futures Commission in Hong Kong. In Singapore, this material is issued by First Sentier Investors (Singapore) whose company registration number is 196900420D. This advertisement or material has not been reviewed by the Monetary Authority of Singapore. First Sentier Investors, FSSA Investment Managers, Stewart Investors, Realindex Investments and Igneo Infrastructure Partners are the business names of First Sentier Investors (Hong Kong) Limited. First Sentier Investors (registration number 53236800B), FSSA Investment Managers (registration number 53314080C), Stewart Investors (registration number 53310114W), Realindex Investments (registration number 53472532E) and Igneo Infrastructure Partners (registration number 53447928J) are the business divisions of First Sentier Investors (Singapore).
First Sentier Investors (Hong Kong) Limited and First Sentier Investors (Singapore) are part of the investment management business of First Sentier Investors, which is ultimately owned by Mitsubishi UFJ Financial Group, Inc. (“MUFG”), a global financial group. First Sentier Investors includes a number of entities in different jurisdictions.
MUFG and its subsidiaries are not responsible for any statement or information contained in this material. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment or entity referred to in this material or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk, including loss of income and capital invested.
Any targets (including, but not limited to, the net zero targets) on this webpage are based on (i) available information and representations made to First Sentier Investors by third parties, including, but not limited to, portfolio companies; and (ii) assumptions made in relation to future matters such as the implementation of government policy in climate-related areas, enhanced future technology and the actions of portfolio companies. Such information and representations may ultimately prove to be inaccurate and such future matters may not ultimately be realised. As such, First Sentier Investors cannot guarantee the achievement of these targets. These targets are subject to ongoing review and may change without notice.
Any ESG related commitments, are current as at the date of publication and have been formulated by the relevant investment team in accordance with either internally developed proprietary frameworks or are otherwise based on the Institutional Investors Group on Climate Change (IIGCC) Paris Aligned Investment Initiative framework. The commitments are based on information and representations made to the relevant investment teams by portfolio companies (which may ultimately prove not be accurate), together with assumptions made by the relevant investment team in relation to future matters such as government policy implementation in ESG and other climate-related areas, enhanced future technology and the actions of portfolio companies (all of which are subject to change over time). As such, achievement of these commitments depend on the ongoing accuracy of such information and representations as well as the realisation of such future matters. Any ESG related commitments are continuously reviewed by the relevant investment teams and subject to change without notice.
To the extent this material contains any measurements or data related to ESG factors, these measurements or data are estimates based on information sourced by the relevant investment team from third parties including portfolio companies and such information may ultimately prove to be inaccurate.