Key Points

  • While the market continues to price in a soft economic landing, we believe it is too early to rule out a significant slowdown, given the pace and extent of recent rate increases.
  • It is difficult to predict the outlook for inflation and interest rates, but longer-term structural changes can bring greater clarity to our investment decisions. These include areas such as technological advancements, shifting demographic trends, and heightened climate-risk awareness.
  • We see structural changes providing long-term growth opportunities in sectors such as technology, health care, industrials and consumer-facing segments.

As we begin 2024, equity markets continue to be dominated by the outlook for inflation and central-bank interest-rate rhetoric. Equities rallied into the end of last year, fuelled by moderating inflation data and the US Federal Reserve (Fed) signalling interest-rate cuts during 2024. However, we have witnessed a sharp reversal in sentiment in the first trading days of this year, driven by new data and renewed geopolitical tensions.

Uncertain Impact of Higher Rates on Economies

The jury is still out on how this narrative will develop over the year ahead, and such swift changes in sentiment serve to underpin how challenging it can be to forecast with a short-term time horizon. It remains to be seen what the impact of higher interest rates will be on economies; while the market continues to price in a soft economic landing, and there are reasons to believe that this is what will materialize (e.g. low inventories, strong balance sheets and strong employment), it is too early to rule out a significant slowdown, given the pace and extent of recent rate increases. A higher-for-longer rate environment is more likely to tip an imbalance into a crisis; often, it can be the things investors do not foresee that cause the most damage.

So, against this uncertain backdrop, what is our outlook for global equities over the next 12 months? While it is difficult to predict the outlook for inflation and interest rates with a great degree of accuracy, there are a few longer-term structural changes happening in the world around us which can bring greater clarity to our investment decisions.

These include areas such as technological advancements, shifting demographic trends, and heightened climate risk awareness alongside greater acknowledgement and understanding of what is required to mitigate the worst impacts of climate change.

We believe there is an opportunity to identify companies that are beneficiaries of such long-term growth trends, especially where we judge that the market has not fully reflected this dynamic in stock valuations. We are seeing innovative technologies and business models disrupt incumbents and market structures; such change is often misunderstood and mispriced by the market and creates exciting opportunities for active equity investors. To exploit these opportunities, a high degree of understanding is required of the underlying themes driving change, and we believe that a thematic approach with rigorous research into these disruptive trends leaves us well placed to identify the winners and to avoid the losers.

Structural Changes Provide Opportunity

We see structural changes providing opportunity not only in directly related sectors such as technology and health care, but also across other sectors including industrials and consumer-facing segments, given that all companies have the need to adapt to grow sustainably and avoid disruption.

Examples of companies we expect to see benefiting include those that offer digital simulation to their customers, enabling better product design and operational efficiency; business-to-business data and analytics businesses that can enhance their customer offering through advancements in analytical tools and artificial intelligence; and animal health companies as demographic trends feed into growing pet health-care spending.

Overall, as we look across the global universe of stocks, we prize structural growth opportunities, competitive advantage, high return on capital and conservative balance sheets above all other attributes for the companies in which we choose to invest. It is these criteria that we believe will set such investments in good stead over the long term. We will endeavor to use any short-term volatility as we go through the year to our advantage, by buying these high-quality companies at valuation entry points that we regard as attractive.


Louise Kernohan

Louise Kernohan

Head of Global Opportunities

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