abrdn Sees Opportunities in Asia Amidst a Global Slow Growth Environment in 2024

Global asset manager abrdn’s Chief Executive Officer of Investments, René Buehlmann, shared his insights on the global market outlook in light of growing economic uncertainties and discussed his investment convictions in the current macroeconomic landscape.

Global Slow-Growth Environment Amid Diverging Economies, Expects Rate Cuts in Mid-2024 and Potential Mild Recession in the US

René highlighted a global slow-growth environment with diverging economies. He noted that stocks and bonds in many major markets surged at the end of 2023, indicating that financial market participants are speculating that rate cuts will happen sooner rather than later this year. Despite agreeing that rate hikes are over for most major economies, René is not as confident as the market that cuts will happen within the next few months. Instead, he sees mid-2024 onwards as a more realistic timeline. Although inflation has decreased this year, he believes it has not yet returned to levels that would allow central bankers to declare "mission accomplished".

“The weakening economic resilience of the US suggests a potential mild recession from the middle of the year. There is a growing possibility of the Fed achieving a ‘soft landing’ by controlling inflation without triggering a recession,” René said.

Navigating a Potential Easing Cycle

Considering a potential easing cycle, overall, René holds a far more optimistic outlook for 2024, where he expects the rate easing cycle will encourage investors back into investments.

“In the face of a global economic slowdown, investors can capitalize on fixed income opportunities while monitoring the dollar’s performance. On the equities front, investors are seeking out resilient "quality" companies with pricing power, strong balance sheets, and durable competitive advantages. Valuations in markets outside the US remain reasonable, making them attractive based on long-term value indicators,” René commented.

Market volatility also drives investors towards diversification into alternative assets. René noted that the shares of listed private equity investment companies are currently trading at substantial discounts to their underlying assets, offering potential value based on our long-term outlook.

Asia Holds Twice the Potential in 2024

René identified Asia as holding significant potential for long term investors. He noted a growth desynchronization, with Asia expected to outperform the US once the Fed pauses and starts cutting rates, which he anticipates will happen in mid of this year, driven by slowing growth and moderating inflation. René also emphasized the stronger earnings resilience in Asia, noting that the region's earnings for 2024 are expected to grow at twice the rate of the US. Consequently, he believes that investors are likely to reward Asia for its robust earnings growth and lower downgrade risks. Additionally, he expects key markets such as Korea, Taiwan, India, and Japan to be the main performers in Asia.

Positive Signs for China's Market Recovery

For China, René noted that current valuations appear attractive, and macro indicators show that targeted policy support is yielding positive results. A recovery in consumption services has commenced, with the potential to broaden out as consumers normalise their savings rate. A re-stocking cycle is in progress, expected to gain momentum in the coming months. René expressed optimism that these developments could restore both corporate and consumer confidence, potentially leading to a sharp rebound in China.

“We remain positive on companies that can adapt to changing regulatory frameworks and align with Chinese policy objectives, particularly in areas such as digital innovation, green technology, affordable healthcare, and improving livelihoods,” he added.

Three Investment Convictions in 2024: Focus on Income, Sustainability, and Asia Opportunities

As to conviction calls in 2024, alongside Asia, René sees high quality fixed income and sustainability in transition investing as key.

In the fixed income space, René is eyeing the impending interest rate pivot and prefers high-quality bonds – particularly debt issued by some of the world's stronger banks – over riskier alternatives. René is positive on duration, via global government bonds, credit, and emerging market local currency debt.

“We retain overweight to investment grade, as it offers a more appealing approach to corporate risk than equities. The strength of the signal on EM local debt was increased, as initial rate cuts from some EM central banks should broaden into a pan-EM rate-cutting cycle by the middle of this year. Certain distressed markets may offer a particularly attractive yield pick-up,” he said.

In terms of sustainability investing, René stressed that investors need to look beyond decarbonisation as social issues linked to the climate transition, a bigger focus on nature, and the growing need for adaptation measures to tackle climate-related physical risks, receive more attention from regulators. René emphasised the impact of climate change remains key for investors to factor in. He added that, "The world is changing, and we need to finance the transition. Investing in companies that are part of this change is vital because transition – when realised – creates alpha."

For opportunities in Asia, René sees India and Japan as some of the bright spots in the region. He highlighted that the Indian economy is at the initial phase of a cyclical upturn, positioning it as one of the fastest-growing countries on a global scale. Driven by significant reforms over the last decade, he added that the Indian bond market has delivered substantial outperformance versus a wide range of asset classes. “The Indian bond market outlook remains bright, and this is an opportune time for investors to position themselves in the market,” he commented.

For Japan, René recognizes compelling top-down and bottom-up factors driving the equities market. He emphasizes that Japanese companies prioritize profitability and capital return. “The Tokyo Stock Exchange's efforts to enhance corporate profitability and governance have accelerated corporate restructuring, dividend payouts, and stock buybacks, all contributing to a positive outlook,” he said.