Jingshun: Global economic growth is expected to improve, optimistic about cyclical and small-cap stocks.
2024-11-14 15:00
Zhitongcaijing
Jingshun believes that global economic growth is expected to improve, so it is optimistic about cyclical and small-cap stocks because their valuations are attractive and they are more sensitive to the economic cycle.
Jan Shun's chief global market strategist Kristina Hooper and Asia-Pacific global market strategist (excluding Japan) Zhao Yaoting pointed out that as expected by the market, the Federal Reserve unanimously decided to cut interest rates by 25 basis points. This indicates that the Federal Reserve is satisfied with the current inflation level and believes that risks to the employment and inflation targets are balanced. Jan Shun believes that global economic growth is expected to improve, so they are bullish on cyclical and small-cap stocks, because their valuations are attractive and they are more sensitive to the economic cycle. Similarly, Jan Shun also favors developed markets (excluding the United States) and emerging market stocks. As central banks around the world begin to cut interest rates, valuation is expected to be supported by lower discount rates.
Since the end of summer, the U.S. economy and labor market have continued to strengthen. Federal Reserve Chairman Powell pointed out that overall inflation in the United States is slowing down, but housing service prices are an exception. However, this does not reflect current inflation pressure, but rather past inflation pressure.
Powell explained that the reason the Federal Reserve decided to continue cutting interest rates is because they believe that monetary policy still has restrictive limitations. In addition, he stated that the U.S. labor market has cooled down in the past two years and is still slowing down, and the Federal Reserve does not want to see it further decline. When asked about what data would lead the Federal Reserve to pause interest rate cuts in December, Powell did not give a specific response. Clearly, the Federal Reserve will make decisions based on overall data, as they are currently focused on the "dual mandate" of achieving full employment and core inflation falling to 2%.
Although Jan Shun expects the Federal Open Market Committee meeting in December to cut interest rates by another 25 basis points, there is still a possibility of pausing the rate cut. Currently, this round of easing has cut rates by 75 basis points. This is equivalent to the total amount of rate cuts during the easing period from 1995 to 1996. Furthermore, in Jan Shun's view, the Federal Reserve has more room for adjustment this time, so it is very favorable for risk assets.
In terms of bonds, considering that bond yields are close to multi-year highs, Jan Shun believes that bonds will also provide attractive opportunities with rate cuts. Given that the duration of bank loans is almost zero, Jan Shun expects that compared to other fixed income asset classes, they will be less affected by interest rate fluctuations, and improve fixed income investment portfolios. Jan Shun expects the dollar to weaken, so local and hard currency bonds in emerging markets are expected to perform well.
Regarding real estate, Jan Shun believes that market prices have absorbed severe negative sentiment, so there is potential for a significant upward movement as the environment improves. For example, the lowering of policy interest rates provides room for a decrease in real estate debt costs and capitalization rates, which will boost trading activity and promote price recovery. In addition, in terms of currency, Jan Shun expects that the dollar will begin to weaken during the year as the Federal Reserve starts cutting interest rates, at least relative to some major currencies.