KUALA LUMPUR: Diversified portfolios, dynamic asset allocation which includes low volatility solutions can help investors navigate the election-fuelled market volatility in 2024, according to Eastspring Investments.
In a report, the firm said the United States (US) is expected to enter a mild recession in the next six to 12 months, and weaker corporate earnings growth should send US equities lower in the medium term.
It added that emerging markets, which have underperformed in 2023, may yield more attractive opportunities.
"The S&P 500 has risen since December on rate cut expectations. At the point of writing, the market is pricing in 150 bp of rate cuts from the US Federal Reserve (Fed) this year. "We believe that significant policy easing is unlikely without a US recession," it added.
Meanwhile, the firm noted that with most funds currently underweight in Asia, increases in exposure could drive and magnify equity market returns.
The firm also expects recession to be concentrated in the developed markets where interest rates have risen the most. It added that emerging markets should still fare better despite slower growth. With the US market trading at 19.6 times 12-month forward earnings, it said Asian equities offer better value at 12.2 times. Additionally, Eastspring mentioned that while India's upcoming elections in 2024 may increase market volatility, they see it as an opportunity for investors to add exposure at more attractive valuations.
The firm favours financials, retail, auto, infrastructure, and select consumer-oriented sectors.
It also added that stock picking, with a focus on valuations and earnings would be even more important after the Japanese equity market's rally in 2023.
Given slower economic growth, the firm stated a preference for quality bonds in both the US and Asia.