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2024 Investment Outlook

A problem of interest - how rates affect investment strategy in 2024

Download the Investment Outlook 2024

Xavier Baraton

In the shorter term, the ‘higher-for-longer’ interest rate narrative is at risk of being challenged by a combination of ongoing disinflation and recession.

Investment Themes

Since the Fed started hiking interest rates in March 2022, global liquidity conditions have tightened materially, bringing inflation down, but it has now raised risks of an adverse growth outcome in 2024. Markets are unprepared for this scenario and continue to assume a ‘soft landing’ – that inflation can dissipate without harming growth prospects. However, we expect a rise in recession risk in western economies, while in eastern economies, some parts of Asia could face growth challenges but still provide diversification benefits and a relative bright spot.

In the longer run, we believe a shift to a ‘new paradigm’ is underway, with inflation and interest rates somewhat higher than during the 2010s. Our preference in this environment will be for a ‘defensive growth’ approach which includes pivoting to higher quality markets. We also suggest ‘intelligent diversification’ strategies.


A Problem of Interest

Monetary and credit conditions have tightened
materially. That breaks inflation, but risks breaking
other parts of the system too.


New Paradigm

We are in a new economic regime of tighter money
and more active fiscal policy. That means different
macro dynamics, higher inflation and interest rates.


Defensive Growth

Market expectations are for a soft landing. But as the
cycle slows and inflation falls, ‘bonds are back’. We
focus on defensive strategies in portfolios.


A Problem of Interest

Topics Discussed by Panel

  • Which economies and parts of the system are weak or in better shape, as global inflation, and growth slow down
  • In a new regime of higher-for-longer interest rates, where will fundamentals finally settle?
  • And where do we see the best investment opportunities across fixed income, equities, emerging markets, and alternative assets

Read our full outlook for insights on the following:

  • Economic outlook and asset class implications
    Our ‘house view’ is for defensive positioning in portfolios at present. That reflects what we see as an optimistic scenario priced into markets versus our concerns over elevated risk of recession and further disinflation.

  • Answers to 'top-of-mind' questions
    Discussion on hedge fund performance during periods of stress, the impact of US rates on emerging markets, tactical stock/bond allocations and expectations for responsible investment.

  • Refinancing the ‘Covid maturity wall’
    Opportunistic funding at low rates during and just after the pandemic created a ‘maturity wall’ in 2024 and 2025, which could create refinancing difficulties at the higher rates now prevailing.

  • The value anomaly in European equities
    Comparing the relative valuation of value and growth stocks over the last two decades reveals that value is now 30 per cent cheaper than it was, while growth is over 50 per cent more expensive.

  • Intelligent diversification through thematic allocations
    We think new sources of diversification will be needed as part of a new investment paradigm that poses challenges to both equity returns and the role of traditional diversifiers.

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