Louise Watson
Almost three quarters (74%) of Strategists see the US presidential election as the biggest risk to markets, and 60% think the US election will more likely hinder than support the market.
Nearly 7 in 10 (67%) believe markets are too optimistic with nearly half of respondents worrying geopolitical conflict (47%) and surprise inflation (40%) could put a stop to the current market rally.
New research from Natixis Investment Managers surveyed 30 global market strategists, portfolio managers, research analysts and economists from across the Group on the top concerns for markets in H2 2024.
Inflation, is among strategists’ top fears, with just 7% thinking the Federal Reserve will reach its target by year end. Strategists are concerned about rates remaining higher for longer (77%) and only 37% expect two cuts in the US in the second half. Relatedly, 47% worry about the ‘politisation’ of the Fed as it makes rate cut decisions.
Geopolitical challenges remain a concern in the second half, with 80% of respondents saying it’s a headwind. Notably the US-China relations, and other global conflicts are expected to have substantial effect on global economies, including Australia, as 70% of strategists don’t think China’s growth will recover.
Strategists predict that AI will alter traditional market patterns (73%) over the next two-five years, and almost all (97%) think AI is yet to realise its full potential. Echoing broader concerns on risk, 93% believe ever-expanding AI capabilities will increase the potential for fraud and scams over the coming year.
Louise Watson, Country Head Australia and New Zealand at Natixis Investment Managers, said, “It’s clear strategists are preparing for an unpredictable second half and all eyes will be on the US. While we can’t control an election outcome, our clients, many of whom are local super funds, will be leaning on our experienced affiliate managers for their knowledge of global markets and active approach that allows them to pivot in response to market challenges.
“Understandably, we’re seeing demand for quality defensive assets and fixed income strategies to balance growth and greater protection for Australian’s retirement savings that can be uniquely customised to the needs of each client. Our strategists are picking credit, favouring government and investment grade corporates over riskier high-yield and emerging market securities.”
All strategists agreed that politics will continue to divide opinion on sustainable investments globally. However, in the next two to five years, half of those surveyed think the fate of sustainable investing will be determined by investors as consumer demand will outweigh political pressure.
“While the short term outlook on ESG investing may face some challenges, investors should rise above the noise as sustainability will continue to be an important consideration when building portfolios for the long term,” said Ms Watson.
With sustainable investing at the centre of strong political sentiment, 57% believe that regulations related to these investments will get stronger, but they are not expected to be consistent globally as only 10% think the EU and the US will align on regulatory requirements, definitions, and reporting frameworks. However, two thirds (67%) believe that ESG scores for data providers will converge meaning fewer players in the next five years.
Meanwhile, 60% of strategists expect impact investing to continue to expand and 50% believe asset managers will need to have a net-zero commitment in order to win business in Europe and Asia.