Andrew Pease

Russell Investments has announced the appointment of Andrew Pease as Head of Investments, Asia-Pacific (APAC), reinforcing the firm’s continued commitment to investment excellence and strong client outcomes across the region.

Pease, who most recently served as Global Chief Investment Strategist and has been a visible voice in global media for more than a decade, brings over 30 years of experience in asset allocation, portfolio strategy, and macroeconomic research. He will relocate from London to Sydney in July, following a multi-week transition and client engagement period in June.

“Andrew is a seasoned investor with a long history at Russell Investments and a deep understanding of global markets,” said Kate El-Hillow, President & Chief Investment Officer. “His appointment reflects our commitment to deepening regional expertise and better aligning our investment platform with client needs across the globe.”

“Our clients across Asia-Pacific increasingly expect access to globally integrated, locally relevant investment solutions,” said Jason Edgar, Head of Asia-Pacific (APAC). “Andrew’s global experience, longstanding client relationships, and deep connection to the region make him ideally positioned to help us deliver on that promise.”

“Andrew’s appointment meaningfully strengthens our investment leadership bench in APAC,” added Jon Eggins, Head of Portfolio Management. “His ability to connect macro insights to portfolio outcomes will directly benefit clients, especially as they navigate an increasingly complex investment landscape.”

In his new role, Pease will lead the investment division in APAC and report to Eggins. He will work closely with local and global teams to deliver innovative, outcome-oriented solutions to clients in the region. His focus will include enhancing the alignment between global research and local portfolio needs, strengthening multi-asset capabilities, and helping clients navigate evolving market challenges with greater precision and insight.

Pease joined Russell Investments in 2006. Prior to serving as Chief Investment Strategist, he held the same role for the Asia-Pacific region. He brings extensive experience as an economist, strategist, fund manager, and former central banker, with previous roles at Macquarie Bank, JPMorgan, Nomura Securities, and the Reserve Bank of Australia.

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Andrew Pease

Russell Investments’ strategists believe soft-landing optimism can deliver more near-term market gains but the risks of a sharper economic slowdown later in the year are elevated.

“Although declining inflation means central banks can start easing in the second half of the year, the lagged impact of previous rate rises is yet to be fully felt,” said Andrew Pease, Chief Investment Strategist at Russell Investments. “Just as last year’s investor pessimism was overdone, we worry this year’s optimism could eventually prove to be excessive.”

With economic growth proving resilient, inflation falling, and corporate profits holding up, the team observes that investors who were fearful of recession in 2023 are being drawn into the market and positive momentum has the potential to push major market indexes to further record highs.

Scratching below the surface, the team also sees the U.S. labour market is cooling, with job openings down about 25% from their early 2022 peak, and signs that lower-income households are coming under stress. In addition, default rates on credit cards and auto loans are above pre-pandemic levels. In the corporate sector, high-yield default rates are picking up and commercial real estate delinquencies continue to rise.

“While we think it is more likely than not that the U.S. can avoid a recession in 2024, uncertainty is still elevated, and markets have priced in all, if not more than all, the positive news in recent months,” Pease said.

Russell Investments’ key asset-class views at the beginning of Q2 2024 include the following:

• The equity market outlook is constrained by expensive valuation multiples, optimistic industry consensus earnings growth expectations, and overbought sentiment. The team previously preferred Quality equities – profitable companies with strong balance sheets – however that overweight was neutralised in February following a stretch of strong performance for these stocks. The team now believes equities have limited upside.
• Non-U.S. developed equities still trade at a steep discount to U.S. equities, but there is significant uncertainty around the ability for these markets to deliver differentiated earnings.
• The team is neutral on emerging markets despite their relative cheapness due to negative sentiment. The team is neutral to slightly overweight Chinese equities across equity portfolio strategies, largely driven by where the firm’s underlying money managers are finding the best value in emerging markets.
• Government bonds, provide attractive value as yields still trade well in excess of expected inflation. U.S. Treasuries are a preferred overweight exposure, where the firm’s fixed income strategy team sees particularly good value in the five-year point of the yield curve. The team’s favorable outlook for government bonds continues to extend across most major developed sovereign markets, including Canada, Germany, Australia and the UK. The only notable outlier is Japan.
• U.S. High yield and U.S. investment grade spreads are very tight into an environment of elevated economic uncertainty, leading the team to dampen its normal strategic overweight to corporate credit.
• Real estate: The prospect of central banks cutting interest rates in 2024 should be a major tailwind for real estate, with Real Estate Investment Trust valuations continuing to look attractive.
• Infrastructure: “Given the significant uncertainty surrounding the macro-outlook, we think the defensive nature of infrastructure investments make them a useful lever for portfolio diversification – cushioning the portfolio in a market downturn, while not giving up significant upside potential should a soft landing come to pass,” said Paul Eitelman, Senior Director, Chief Investment Strategist, North America, at Russell investments.
• The U.S. dollar is expensive which suggests potential for the greenback to decline over the medium-term. However, the potential for a global recession in 2024 could result in further upside for the dollar in the short term as investors flock to the relative safety of U.S. assets. The team believes these two-sided risks warrant a neutral stance.

“On balance, our investment decision-making process leans slightly cautious, but it does not show markets at an extreme that would incline us to position portfolios markedly risk-on or risk-off. Instead, most of our portfolio strategies at the beginning of the second quarter are emphasising security selection and diversification to protect client outcomes across a wide range of potential scenarios in the year ahead,” Pease said.

Read the 2024 Global Market Outlook.

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Andrew Pease

Russell Investments’ strategists expect elevated recession risks for 2024 and headwinds for equity markets, but a more positive environment for government bonds.

“We expect 2024 will be the transition year that the industry consensus anticipated for 2023,” said Andrew Pease, Chief Investment Strategist at Russell Investments. “The over-pessimism about 2023 has become over-optimism for 2024. We are in a twilight zone between slowdown, possible recession and recovery, where nothing is likely to be quite what it seems.”

Slowing jobs growth and declining inflation at year-end 2023 offer signs the economy has begun to cool, which Pease believes means the U.S. Federal Reserve has probably finished lifting interest rates and may contemplate easing during the first half of 2024. It also means markets are entering a period of heightened uncertainty as investors debate whether recession can be avoided.​

“It may appear for a time that the U.S. economy has achieved a soft-landing, but this could be a waypoint on the path to a mild recession later in 2024,” Pease said.

Russell Investments’ 2024 outlook report also explains why government bonds are likely to re-establish their role as effective diversifiers for multi-asset portfolios and prompt a comeback for the traditional 60/40 investment portfolio.

In contrast, the team believes the era of big fiscal expansions is over as politicians across the world become constrained by the realities of debt burdens and interest costs. “There will be less ability to respond to the next economic downturn with fiscal support,” Pease said. “There is a risk that central banks will be forced to accommodate inflation above their targets, but as we learned in 2023, inflation is unpopular with voters. The bond market bullies are back.”

Russell Investments strategists’ key asset-class views for 2024 include:

• Government bonds offer attractive value as yields trade well above expected inflation. “Recent 10-year U.S. treasury yields around 4.5% offer good value and recession risks should provide cycle support for bond returns,” Pease said. He added that yields should decline as recession risk looms, and the team has a target of 3.5% for the U.S. 10-year Treasury yield by the end of 2024.
• Equities have limited upside with expensive valuation and recession risk on the horizon.
• The Quality factor is the team’s preferred exposure within the equity market.
• The U.S. dollar could weaken early in the year on soft-landing hopes but strengthen later in the year if recession fears take hold.
• High yield and investment grade spreads are uncomfortably tight for an environment of elevated economic uncertainty, leading the strategists to dampen their typical strategic overweight to corporate credit.
• The team is neutral on emerging markets despite their relative cheapness due to negative sentiment. Regarding structural changes facing the Chinese economy, the team needs to see extremely oversold conditions before overweighting the market.

“As we look toward 2024, we see select opportunities within asset classes to build a slightly cautious stance in portfolios,” Pease said.

Read Russell Investments’ 2024 Global Market Outlook.

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“We still like the pandemic-recovery trade that favours equities over bonds, the value factor over the growth factor and non-U.S. over U.S. stocks,” said Andrew Pease, global head of investment strategy at Russell Investments. “Inflation is the new concern, but the spike so far appears to be a combination of base effects and supply bottlenecks.”

The team expects it will take until the middle of 2022 for the U.S. economy to recover the lost output from the lockdowns and longer in other economies. They also believe broad-based inflation pressures are unlikely until then.

“Market expectations for Fed lift-off in 2022 are premature,” Pease said. “We expect the Fed to commence tapering in 2022, with the second half of 2023 the likely timing for the first interest rate hike.”

At mid-year, the team also forecasts U.S. real gross domestic product (GDP) growth of 7% for 2021, which would be the best calendar-year outcome for the U.S. since 1984. The team sees a similarly strong post-lockdown recovery in Europe with 5% GDP growth for the year.

Russell Investments’ cycle, value and sentiment investment decision-making process at mid-year concludes global equities remain expensive, with the very expensive U.S. market offsetting better value elsewhere. Sentiment is close to overbought, but not near dangerous levels of euphoria. The strong cycle delivers a preference for equities over bonds for at least the next 12 months, despite expensive valuations. It also reinforces the team’s preference for the value equity factor over the growth factor and for non-U.S. equities to outperform the U.S. market.

The best-performing asset classes since the reopening trade began November 6, 2020, when Pfizer announced the first successful COVID-19 vaccine, have been small cap and non-U.S. equities, global real estate investment trusts (REITS), commodities and the value factor.

“The asset classes that performed poorly during the lockdown have been the winners in the post-vaccine phase, and we expect that pattern to continue for the next few months,” Pease said.

At the beginning of Q3 2021, the team’s views are summarised as follows:

Read the 2021 Global Market Outlook – Q3 update.

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Growth expected in 2014: Russell.

Russell Investments is forecasting modest gains for equity markets and higher bond yields in 2014 following growth in major world economies, according to capital markets research released by the global asset manager.

The fourth quarter Strategist Outlook & Barometer report offers in-depth analysis of key economic and market indicators, with the insights helping to guide the firm’s multi-asset portfolios and services.

In the report, Russell cited politics – including uncertainty about U.S. monetary policy and political pressures globally – as the biggest threats to performance across asset classes in 2014.

Russell continues to favour equities over fixed income, with strategists remaining moderately positive on equity markets globally.

Domestically, Australian large cap equities have outperformed Australian fixed income by 23% (total return basis) over the past 12 months. According to Russell Investments’ Senior Investment Strategist for Asia-Pacific, Graham Harman, this pattern is expected to hold over the next 12 months, albeit at declining strength, as lackluster conditions and mixed economic signals affect Australian markets.

“We expect the low interest rates driving house prices to be balanced by a slowing domestic economy in the wake of a resource-sector boom,” he said.

The report also shows European equities are favoured over U.S. equities, while emerging market equities look increasingly more positive, possibly offering double-digit earnings growth in 2014.

Global Head of Investment Strategy at Russell Investments, Andrew Pease, said the forecast is for synchronised growth across the US, Japan and Europe for the first time since 2010.

“Looking ahead to 2014, we expect to see a strengthening low-inflation recovery that favours equities over bonds, despite relatively full equity market valuations,” he said.

Regional optimism in the Eurozone and Asia-Pacific despite political concerns

While Eurozone equities still appear relatively cheap and capital continues to flow amid the easy monetary policy of the European Central Bank (ECB), Russell’s strategists argue vigilance is still warranted. However, since the Eurozone’s key long-term problems have not been solved, these positives only marginally outweigh the negatives.

In the Asia-Pacific region, the investment climate continues to improve in Japan as Prime Minister, Shinzo Abe, appears successful in turning the economy around. Though stimulus and spending challenges remain, real GDP is at 4%, and monetary growth is at 3% year-on-year at the end of the third quarter, after bottoming near zero at the beginning of 2013.

Elsewhere, China’s economic rebalancing is performing as it should, and the Asia-Pacific region as a whole appears poised to respond positively to acceleration in the U.S. and/or European growth in 2014.

Asset class views

Russell’s global strategy team has a moderately positive view on global equity markets, while bond yields have fallen sharply in response to the Federal Reserve’s decision not to wind back their bond buying program earlier, a move that Russell believes may be an overreaction. Within regional equities, Russell prefers European and Japanese equities, followed by South-East Asia, the U.S. and Australia.

Mr Harman said emerging markets could get a renewed shakeout when talk of Federal Reserve tapering resumes, but believes most currency adjustment has already occurred across the vulnerable economies.

“Looking at the path ahead, we believe additional volatility may continue, but this could be leveraged as an opportunity to increase tactical equity positions, such as within multi-asset portfolios,” he said.

For more information, visit  the “Strategists’ Outlook and Barometer” report.

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According to the report, sliding stock prices and ongoing concern about a prolonged global economic rout has increased the attractiveness of mainland China and India as preferred markets. “China is the standout market in the region on valuation grounds but has also been one of the worst performers. China is starting to attract the attention of value oriented fund managers and is a defensive market heading into a global slowdown.”

Despite its poor performance, Russell finds India to be the most compelling market for investors considering Asia. “The relatively attractive valuation from our Composite Value Indicator (CVI) combined with the easing of inflation pressures, peaking in the tightening cycle and India’s defensive characteristics heading into a global slowdown put this market at the top of our list”, said Pease.

Pease says that the economic issues facing Asia ex-Japan seem “decidedly old fashioned” compared to the US and Europe. Asia’s problems include overheating, inflation and policy tightening while problems impacting the rest of the world may see less need for policy tightening across the region.

Singapore, Taiwan and Hong Kong are in neutral valuation zones and are export exposed economies heading into a global slowdown. Singapore is likely to be slower to respond to global growth downturn and Hong Kong also remains vulnerable. Taiwan’s technology bias links it closely to the global demand cycle, but also could be one of the main beneficiaries if the current pessimism is misplaced and demand recovers through early 2012.

“Share market valuation for Asia ex-Japan has become more attractive as a result of the market shake-out we are experiencing, but it still lags the rest of the world. The upside of the global turmoil is that policy tightening to deal with inflation pressures is now less urgent. The downside that weaker global demand will add to the export slowdown is already underway,” said Pease. “We’re cautious near-term on global markets while volatility remains high and US growth indicators are weak. Conditions for Asian markets should improve heading into 2012 if, as we expect, the US economy begins to recover to a trend-like pace.”

Thailand is the region’s least attractive market, according to the report. It is the most expensive market in the region, according to Russell’s CVI, with inflation trending higher over the last year and reaching 4.1% in July.

“There are also concerns that the new government’s promises on wages and investment will add to inflationary pressures. A combination of rising inflation, monetary tightening, slower global demand and relatively expensive share market valuation keeps us cautious on Thailand,” said Pease.

Other key points from the report include:

• Russell says fears of a renewed recession in the US are overdone and expects a rebound in US GDP growth to a 3% pace through the first half of 2012 
• Korea looks attractive on valuation grounds as it has been hit hardest by market volatility, losing nearly 12.8% in August alone 
• Malaysia looks expensive, according to the composite valuation indicator. It has one of the highest export to GDP ratios in the region (97%) and is vulnerable to a global downturn in export demand 
• Europe remains an ongoing cause of concern for global markets. Another sell-off would signal that markets are losing confidence in Europe’s ability to solve its fiscal problems and be a pre-cursor to a larger crisis. 

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Russell’s Volatility Toolkit offers daily perspectives on changes in capital markets relying on its strong team of over 500 global investment professionals. It also contains a range of educational articles covering topics such as: ‘behaviours that threaten your financial security, ‘investment strategies for the worried and confused; and ‘how you can learn from volatility’ with historical overviews of previous market cycles.

Investors are also given tips on how to ride what Russell has coined the ‘cycle of market emotions’, enabling them to better distinguish between points of maximum financial risk and maximum financial opportunity in the markets.

The new toolkit follows the launch of Russell’s Helping Advisers website in July this year. Russell’s Chief Executive Officer for Australasia, Chris Corneil, said the toolkit was part of Russell’s ongoing commitment to improving investor education. 

“Given the recent market movements and the likelihood of continued volatility, it’s not surprising investors are experiencing some anxiety and uncertainty. We have a responsibility to give investors as much guidance as possible so they can make more informed decisions about their investments now and in the future,” he said.

The toolkit also offers institutional investors up to date information on how Russell’s own portfolios are being managed and adjusted to deal with and take advantage of market volatility. To support clients through this period and help them manage stakeholder concerns, Russell’s institutional and adviser clients will be able to re-issue any materials from the online toolkit. Materials, including videos, will be accessible to all online and via Twitter.

Russell’s market outlook

Russell’s believes the US and global economies will continue on a path of gradual recovery, even though that recovery is fragile and sub-par.

“We think market sentiment is fluctuating more dramatically than changes in the underlying economic fundamentals. For this reason, we don’t recommend investors reposition their portfolios to cash at this time. Well-diversified portfolios will cushion the effects of market volatility,” said Andrew Pease, Chief Investment Strategist, Asia Pacific at Russell.

According to Russell, for many investors with well-diversified portfolios and a medium to long-term perspective, staying with their strategic asset allocation is in most cases a preferred option.

“The current market volatility may cause actual asset allocations to diverge from their strategic benchmarks. We would encourage investors to rebalance their asset allocation as volatile markets take them away from their long term strategic asset allocation,” Mr Pease added.

“Like all investors we are riding the rollercoaster of volatility but we are confident our team of experts have the knowledge and experience necessary to guide us and investors through this challenging time,” Mr Corneil concluded.

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