Market Insights
Banque Cramer
Outlook 2024

Lower rates combined with credit spread carry will be significant performance drivers

• Government bonds We anticipate lower yields in 2024 as inflation continues to recede and central banks deliver on rate cuts However, investors have largely front run the rally in yields, and our positive view on bonds is more measured ahead of 2024 with the expectation that central banks may not deliver what the markets anticipate We favor US treasuries over Bunds
• Credit With credit spreads having compressed in the last quarter of 2023 following a rally in both yields and equities, a cautious and selective approach based on fundamentals must prevail early in the year Consequently, we favor Investment Grade Credit entering 2024 While USD Investment Grade spreads are close to their 5 year low, EUR Investment Grade appears less stretched
  
  

Risky asset will take advantage of rate cuts’ expectations

• High Yield The very low issuance in 2023 has been a major support for the strong performance of High Yield Moreover, spreads have proven highly resilient to the deteriorations seen in fundamentals and are tight based on historical standards With significant refinancing needs in 2024 and 2025 for the asset class, supply pressures will rise throughout 2024 as issuers often act early to roll their debt Despite a soft performance early on, we believe that 2024 will be a positive year for High Yield credit We favor capital structure over High Yield exposure entering 2024
  
  
• Hard currency Emerging Debt Compared to USD denominated BB rated High Yield, Emerging Debt is less tight than High Yield spreads on a historical basis, with quite similar yield and lower volatility
• Equities The strong rally seen since the end of October puts us in a complicated situation at the dawn of 2024 Global equity risk premia have dropped significantly, making equities less attractive in terms of risk reward. We favor a defensive stance entering 2024 supporting defensive and dividend stocks, and deploying towards more alpha exposures throughout 2024
  
  

US Dollar will weaken and Japanese Yen recover

• Local currency Emerging Markets In 2023 EM foreign currencies depreciated against the US Dollar In 2024 we expect local currency debt and equity markets to take advantage of US Dollar weakness, but selectivity is key given the disparate and diversified nature of these markets
  
  
• Yen the currency has bottomed Lower US yields and a normalisation to come from the BoJ’s monetary policy will provide support to the Japanese currency
  
  
• Gold The precious metal reached a historical record at 2135 but failed to establish itself above the 2100 mark Short term moves will be driven by the expected trajectory of US rates and a softer US Dollar Gold prices are expected to stall in 2024 due to renewed appetite for risky assets

Risks to our scenario

Hard landing deflation explicitly accommodative stance

– With earnings prospects declining, equities will be hit the hardest

– Government bonds will play their safe haven role

– Credit spread, especially on high beta, will widen but carry would compensate Focus on short maturities

Firm growth inflation explicitly restrictive stance

– Earnings growth would benefit from persistently high inflation, with global equities posting positive returns, along with quality High Yield thanks to carry (Focus on short maturities)

– Government bonds will struggle to outperform cash and money market yields