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What’s your offshore strategy for 2024?
After assessing events in the markets in 2023, we have come up with some broad recommendations that you can consider this year.
By Ricky Maddatu
We already talked about our investment strategy for 2024 for the local markets last week. But, you may ask, what about offshore?
If you have a portfolio that includes foreign markets, or if you plan to expand your investment horizon to potentially lucrative markets, you may do well to study offshore opportunities in 2024.
Heading into the year, we see:
- Stronger market breadth across different sectors – not just Big Tech
- High-quality stocks in a stronger position on the back of rate cuts
For us at Metrobank, we present our views on several markets that include the United States, Europe, Japan, China, the United Kingdom, and India. We hope you find them useful.
US: Neutral to Underweight
Labor market resilience and moderating inflation prompted US indices to reach all-time-highs last year. Moving deeper into 2024, however, we will likely move to a more defensive stance.
US debt has reached USD 33 trillion and the country’s debt-to-GDP ratio is already at World War II levels. Another factor dampening growth is the resumption of student loan repayments in September which could slow consumption further.
There are still tactical opportunities for the US, though. We remain bullish in the short to medium term, especially with advancements in artificial intelligence and technology which could boost productivity levels and margins.
Europe: Underweight
We remain cautious about Europe. A stagflating economy and the contraction in manufacturing leave us uncertain about its prospects in 2024. With weak demand, we can expect slowing earnings for companies.
However, tactical opportunities remain present, as observed from Europe’s recent market rally. Inflation has cooled to a two-year low, and the euro appreciated and closed 2023 on a positive note.
But entering 2024, we recommend an underweight stance for Europe given the aforementioned risks.
Japan: Neutral
The Land of the Rising Sun is actually an alternative to China, or even the US and Europe. If the US or Europe enters a recession, the yen will be a strong currency next year. The yen is widely known as a safe haven currency given Japan’s strong liquidity, low inflation, and stable political system.
This is something to consider as we enter 2024. Japanese markets also have practical opportunities in the short to medium term.
China: Underweight
We have seen how China fumbled after the reopening of its economy following the onslaught of COVID-19.
Consumer spending was not strong enough to pull the lagging property sector back. So if you look at China right now, the problem is less economic, but more structural.
The business model of the country revolves around property, and it is not doing well. You can’t change your business model overnight. It’ll take years to do that.
UK: Underweight
We hold an underweight rating for the United Kingdom because of its lower liquidity.
In the early 2000s, the UK stock market was around close to 9-10% of the world stock market index. But it has since declined to just 4%. The average daily volume has also declined.
We also see that it has suffered from inflation much worse than the US or even the eurozone. The October CPI was around 4.6%. That’s still double the Bank of England’s policy target, and it’s also much higher than the US.
India: Overweight
The bright spot for us is India. India’s stock market staged record-breaking rallies, making it the favorite among its APAC counterparts despite being more expensive than regional peers.
Not only have we seen more stock listings this year in India, but we also continue to see an increase in domestic participation in the stock market, mainly amongst the youth.
So flows domestically are particularly seen in the small to mid-caps, and growth in the country has also consistently been strong. GDP expectations ending March 2024 are around 6.4%, whereas earnings are forecast to grow at around 17%, with banks, healthcare, and energy being the best sector picks in the coming year.
Call for prudence
As we said in our previous article, there is going to be a transition in 2024. It will mostly be the same for offshore portfolios, where we focus on fixed income in the first half and shift to neutral in equities in the second half.
Our strategies need to be dynamic. We must be flexible with the developments in the world economy and financial markets.
(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.