Shaping your investment strategy in 2024 

As the year comes to an end, investors naturally take the opportunity to review their portfolios and think of their game plan for 2024.

Clients come to us for advice, insights, and even inspiration. For us at Metrobank, we can only say there will be no drastic change in strategy. Fixed income will still play a major role in anyone’s investment portfolio. But there are some key changes steering the markets into some exciting possibilities.

One is the normalization of central bank policy rates. While we think it is best to be overweight on fixed income, or government securities, in the first half of 2024, the normalization of rates in the second half would offer some opportunities in equities.

We believe that by then, it would be a good time to move closer to neutral on equities as we take profit from our fixed income portfolio.

Greater upside for equities

As supply chain restrictions, tensions caused by the Ukraine-Russia and Hamas-Israel wars, global inflation, and threats of recession dissipate, there will be greater upside from equities.

We expect earnings to grow by 6% next year as consumption slows on the back of an economic global slowdown and elevated inflation.

For this year, even though earnings momentum seems to be intact in the first nine months of 2023, revenue growth is still lower than bottom-line growth.

While we see the price-earnings (PE) ratio reaching 13x in 2024 and an earnings yield of 7.7%, we consider this attractive as this implies a 220 basis-point premium over the 10-year GS. However, depressed sentiment may keep valuations at 11-12x.

Sectors we like

For now, our sector picks include utilities, property, and select conglomerates. As cyclical sectors may be put under pressure amid the prospects of a global economic slowdown, we are adopting a defensive stance.

Utilities exhibit strong cash flow and high dividends. Lower interest rates may also encourage more property buying as mortgages go down. Conglomerates with exposure to resilient segments of consumption also offer great value.

We still believe that a meaningful rally in equities requires greater foreign participation, which is still not present in the stock market now, but may recover next year.

For now, the yield levels of the fixed income segment of the peso government securities (GS) market are still very attractive and should merit an overweight exposure.

Gradual shift

In summary, we believe there is going to be a transition in 2024, hence our focus on fixed income in the first half, and a gradual shift to neutral in our equity allocation in the second half.

As we always say, please reach out to your investment advisor to plan out your own strategy in 2024.

(If you are a Metrobank client, please get in touch with your relationship manager or investment specialist. Not a client yet? Please sign up here so you can begin your wealth journey with us.)

RICKY MADDATU, CFA, is Vice President and Head of Multi-Asset Investments, in charge of the Trust Banking Group’s multi-asset strategy for the Metrobank Trust Group’s discretionary accounts. Ricky enjoys teaching and training others, and he frequently lectures on various investment topics. When not staring at Bloomberg screens and spreadsheets, he spends his spare time on different business ventures with his wife and family.