Page 49 - Monaco Economy 129

UBP: Investment opportunities - Back to the future

The US and European rate-hiking cycles should come to an end in 2024, giving investors respite in
the year ahead. By Norman Villamin

investors in the new energy transition, American
industrial construction spending had reached
USD 1.9 trillion by the end of August 2023, rising
nearly 65% year on year, the fastest pace this
century, underpinning economic growth and
employment.
Federal government funding for this policy
agenda is expected to accelerate even more
meaningfully in 2024–26, laying the foundations
for earnings recovery.
Meanwhile a stabilisation in bond yields should
allow longer-term projects some financing
visibility to accelerate through 2024 and
beyond.

Non-US earning prospects improving
Looking outside of America, non-US equities
are trading below 13x earnings, just above the
levels seen during the 2020–21 pandemic, a
historical valuation floor. Earnings prospects
can be the focus for investors to drive
returns. Japan stands out, having hesitated
for decades before pursuing comprehensive
corporate and economic reform in 2012.
© UBP Since then, Japan corporates have delivered

an 11% compound annual growth rate,
Norman Villamin, Chef stratégiste Groupe, Union Bancaire privée (UBP) / Group Chief Strategist, Union Bancaire Privée (UBP)
outpacing not only the 7.3% of the S&P 500
but matching the 11% of the higher-growth
While inflationary pressures have been in concern for the start of the new year, they NASDAQ 100 index.
retreat since mid- to late 2022 in the US and should ease as earnings recover, especially After the 22.3% rally in Japanese equities in
Europe, global bond markets are once again among the largest US technology names. 2023 (as at end October), Japan’s decade-long
rewarding investors for taking a risk. earnings-driven bull market should carry on
This means longer-term interest rate exposure The strength of tech and industry into 2024. Earnings growth is expected to be
can be reintroduced. As yields moderate, With interest rate pressures abating, raised to 7% by a global industrial recovery
modest capital gains can be realised for the accelerating artificial intelligence spending in the first quarter, with share buybacks and
first time since 2020. should combine with cyclical recoveries in dividend growth continuing to support total
Investors who found shelter in credit in cloud, e-commerce, and digital advertising returns.
2023 should be more wary and seek fuller to drive double-digit revenue and earnings
compensation for credit risk in 2024. growth as the calendar turns, benefiting big Returns behind the volatility
Refinancing cycles should pick up and drive tech but also the software sector. While risks are elevated during this transitional
the next leg of credit defaults as companies Outside of technology, investors can look to phase of the global economic order,
digest a new, higher interest rate regime. In quality laggards which offer an opportunity opportunities are emerging as new equilibria
the meantime, investment-grade bonds offer to access strong balance sheets and reliable are found, like in global government bond
refuge. earnings growth. markets.
For those seeking higher yields, our expectation In addition, the weakening industrial cycle It seems wise for investors to look through
of elevated equity volatility also means volatility appears to be rebounding as 2023 draws to a near-term volatility and keep their eye on the
carry strategies can complement short- close, driven by the new US industrial policy – returns from the long-term transformation
duration high-yield bonds for higher income focused on building 21 century infrastructure, of the global economy – in technology
st
in 2024. industries, and power generation. and new energy, as well as the changing
Though above-average valuations are a Though equity markets have not rewarded global order.

49