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Δ Overweight     ∇ Underweight    — Neutral

Equity – at a glance     —

13 DECEMBER 2024

• We are upgrading global equities to Overweight and expect them to outperform bonds and cash. US equities are the catalysts for the upgrade. We remain Overweight US equitiesas likely expansionary policies following recent elections, such as potential tax cuts and deregulation, add fresh impetus for US companies, on top of accelerating earnings growth.
  
• We are Underweight Europe ex-UK equities amid a deteriorating earnings outlook and Trump’s threat of tariffs, despite cheap valuations. We see UK equities as a core holding (Neutral) with an attractive dividend yield and valuation discount. UK equities offer a defensive sector composition, but the lack of growth sectors could limit outperformance.
  
• Japan equities are a core holding (Neutral). We are encouraged by improving share buybacks and the reflationary environment, although they remain vulnerable to swings in the yen carry trade. Asia ex-Japan equities are a core holding (Neutral). The region’s projected EPS growth remains elevated at 12.5% in 2025. China, facing deflationary pressures, is likely to try and offset US import curbs with higher exports to non-US markets and increased stimulus to boost domestic demand.
  

North America equities – Preferred holding     Δ

13 DECEMBER 2024

The Bullish Case:

+ Strong earnings growth

+ Supportive US policy

The Bearish Case:

– Valuations, sensitivity to higher yields

Europe ex-UK equities – Less Preferred holding     ∇

13 DECEMBER 2024

The Bullish Case:

+ Inexpensive relative valuations

The Bearish Case:

– Still-weak growth outlook

– US trade policy risks

UK equities – Core holding     —

13 DECEMBER 2024

The Bullish Case:

+ Attractive valuations

+ Dividend yield

The Bearish Case:

– Stagflation risks

– US trade policy risks

Japan Equities – Core holding     —

13 DECEMBER 2024

The Bullish Case:

+ Reasonable valuations

+ Rising dividends/share buybacks

The Bearish Case:

– JPY strength

Asia ex-Japan equities – Core holding     —

13 DECEMBER 2024

The Bullish Case:

+ Earnings

+ India growth

+ China policy support

The Bearish Case:

– China structural growth concerns

Δ Overweight     ∇ Underweight    — Neutral

Bonds – at a glance     —

13 DECEMBER 2024

• We view global bonds as a core holding. Concerns over the US fiscal deficit after a Republican sweep in the US elections and a strong job market lifted long-term US bond yields in November. However, likely Fed rate cuts and contained inflation under our base macro scenario should help cap bond yields. We see an opportunity to lock in attractive income at current yields.
  
• Developed Market (DM) Investment Grade (IG) government bonds are a core holding (Neutral). Both nominal and real yields are attractive from a historical perspective. Our 12-month target for the US 10-year government bond yield is 4.00-4.25%. DM IG corporate bonds are a core holding (Neutral). Tight yield premiums illustrate high valuations, but we see these supported by solid fundamentals and continued inflows. We are Overweight DM High Yield (HY) corporate bonds. Historical solid performance in soft-or-no-landing scenarios, potential deregulatory policies in the US and lower policy rates are supportive.
  
• Emerging Market (EM) USD government bonds and Asia USD bonds are core holdings (Neutral). Yields are attractive, but potential US protectionism is unfavourable. In Asia, we prefer HY over IG bonds given their domestic exposure and likely support from China stimulus. We are Underweight EM local currency government bonds given potential FX and geopolitical risks.
  

Developed Market Investment Grade government bonds – Core holding     —

13 DECEMBER 2024

+ High credit quality

+ Attractive yields

The Bearish Case:

– High sensitivity to inflation, monetary policy

Developed Market Investment Grade corporate bonds – Core holding     —

13 DECEMBER 2024

The Bullish Case:

+ High credit quality

+ Sensitive to falling yields

The Bearish Case:

– Elevated valuations

Developed Market High Yield corporate bonds – Preferred holding     —

13 DECEMBER 2024

+ Attractive yield

+ Low rate sensitivity

The Bearish Case:

– Elevated valuations

– Sensitive to growth

Emerging Market USD government bonds – Core holding     —

13 DECEMBER 2024

The Bullish Case:

+ Attractive yield

+ Sensitive to US rates

The Bearish Case:

– EM credit quality

– US trade policy risks

Emerging Market Local currency government bonds – Less Preferred holding     —

13 DECEMBER 2024

+ Attractive yield

The Bearish Case:

– Sensitivity to USD strength

– US trade policy risks

Asia USD bonds – Core holding    —

13 DECEMBER 2024

The Bullish Case:

+ Moderate yield

+ Low volatility

The Bearish Case:

– Elevated IG valuations

Δ Overweight     ∇ Underweight    — Neutral

Commodities – at a glance     

13 DECEMBER 2024

• We expect gold to rise to USD 2,900/oz over the next 12 months and hold an Overweight view on the precious metal relative to other major asset classes. Continued robust demand from central banks remains a key driver of our view. While this may have slowed to some degree in late 2024 because of a sharp rise in gold prices (which indicates central banks are not entirely price-insensitive), we expect demand to rebound on pullbacks in the gold price. Lower bond yields or safe-haven demand are likely to pose upside risks to prices, while reduced geopolitical risks or rising bond yields would pose downside risks.
  
• Prices are likely to rise more modestly towards USD 2,750/oz over the next 1-3 months. In the near term, we expect gold to continue recovering gradually from oversold levels following the October-November 2024 pullback. Gold’s recovery is likely to be aided by easing US bond yields as markets seek reassurance that Trump’s policies are likely to be less inflationary than previously expected following the nomination of Wall Street veteran and fiscal conservative Scott Bessent as Treasury Secretary.
  
• WTI oil prices are expected to ease further to USD 65/bbl over the next 12 months. Worries about excess supply underpin our view on oil. We expect global crude oil supply to remain high relative to demand, Saudi Arabia and the UAE to retain significant spare capacity and Trump’s proposed energy policies to focus on increasing US oil and gas supply. Demand expectations remain weak, with Chinese demand being weaker than expected in 2024. On balance, this backdrop is likely to lead to surplus capacity in 2025, keeping downward pressure on prices. A significant improvement in US or China economic growth would be an upside risk, while any shift in OPEC+ output policy towards defending market share is a downside risk.
  
• WTI oil is likely to rebound towards USD 70/bbl over the next 1-3 months. A continued rebound in investor positioning away from bearish extremes is likely to offer short-term support to oil, as would any delay in the restart of shuttered OPEC+ supplies.
  

Gold      —

13 DECEMBER 2024

The Bullish Case:

+ Continued central bank demand

+ Lower US bond yields

+ Safe-haven demand

The Bearish Case:

– Rise in real bond yields

– Strong risk-on environment

Oil

13 DECEMBER 2024

The Bullish Case:

+ No-landing leads to strong rebound in demand

+ Geopolitical event reduces global supply

The Bearish Case:

– Sharp rise in US output

– OPEC+ focuses on market share, boosts output

– Weak China demand

Δ Overweight     ∇ Underweight    — Neutral

Alternatives – at a glance     —

13 DECEMBER 2024

The Bullish Case:

+ Diversifier characteristics

The Bearish Case:

– Equity, corporate bond volatility

Δ Overweight     ∇ Underweight    — Neutral

Multi-Asset – at a glance

13 DECEMBER 2024

• Our Multi-asset income (MAI) strategy has delivered 7.8% returns year-to-date, supported by our core allocations to the US, Europe and Asia dividend equities, and covered calls, given the strong returns from equity markets. Elsewhere, fixed income components generally added positively to the strategy returns, with Developed Market (DM) High Yield (HY) and Emerging Market (EM) hard currency bonds being the stronger contributors. EM local currency bonds had a more challenging 2024 due to USD strength. Looking ahead, we continue with our tilt towards sub-financials over DM HY bonds, while we prefer taking risk through global dividend equities rather than covered calls. We have also adjusted our MAI strategic allocations – increasing allocations in fixed income and introducing global equities into the mix.
  
• Yields on offer across income assets are likely to fall slightly in 2025 as central banks continue to cut rates. To preserve income streams and maintain returns in a falling rates environment, investors can consider reallocating into assets with higher yields, mitigating reinvestment risks. A diversified MAI strategy offers a comprehensive approach to maintain high income and returns in a falling rates environment.
  
• Although income strategies prioritise generating a steady cash flow, it is important to adopt a total returns approach. Reinvesting dividends and interest rather than withdrawing them can significantly enhance long-term returns by combining income with capital appreciation. This holistic view is critical for sustaining wealth over time.