Global Asset Allocation Perspectives
July 2024
To help guide the positioning of Scotia Portfolio Solutions, the Multi Asset Management team of Scotia Global Asset Management meets regularly to discuss and debate the current macro environment and what it means for portfolio positioning. The following report captures the team’s current views.
Key macroeconomic themes
Global economic themes that are most likely to influence our views on portfolio asset allocation over the next 12-to-18 months.
Global growth will continue to be subdued
As the lagged impact of higher interest rates continues to slow the global economy, growth will likely remain subdued, but positive, for the rest of 2024. Manufacturing activity may weaken in the second half of the year while services remain robust.
More rate cuts on the horizon
The disinflation trend will likely continue in the second half of 2024, but core inflation remains stubbornly high. Several G10 central banks have started to cut interest rates and additional, modestly paced, cuts are likely. A sharper economic contraction will be required to see more significant reductions.
Risks persist
The impact of higher for longer interest rates will continue to create risks in financial markets. Should a recession materialize, we do not expect it to be deep or prolonged as the backdrop for businesses and consumers remains strong. Growing geopolitical tensions and increasing polarization pose additional risks to markets.
Asset allocation perspectives
Equities
At this time, we have a neutral view on equities overall relative to fixed income given the abundance of conflicting indicators.
From an economic activity standpoint, cracks continue to form in housing activity and employment. From a market perspective, fast-growing technologies (cloud, artificial intelligence, GLP-1) continue to mask economic weakness – so much so, that highly concentrated markets remain a key risk, as does inflation, which has come down, but continues to be stubborn.
We remain patient at this time and are keeping an open mind towards taking advantage of any opportunities as they emerge.
Fixed income
Bond yields have risen to start the year, peaking in the spring, as markets shifted on rate cut expectations. Despite moderating inflation, the labour market remains tight, increasing the chances of fewer rate cuts, particularly if monetary policy is ultimately not restrictive enough.
Over the longer term, yields remain attractive, providing a solid foundation for income and capital appreciation once central banks lower interest rates further.
Due to this balance of risks, we have a neutral view on fixed income overall relative to equities at this time.
Canada
We have a neutral-overweight view on Canadian equities. The increase in interest rates has clearly impacted the Canadian economy more than the U.S. economy. Given this, the likelihood that the Bank of Canada will continue to cut rates before the U.S. is high and may create more positive sentiment towards Canadian stocks. Despite long term secular strength in the economy, Canadian equities remain priced significantly below their American counterparts.
U.S.
Despite rate cuts being pushed further out, we maintain our overweight view on U.S. equities. Inflation has fallen considerably from its peak, the economy remains resilient and U.S. equities continue to see positive momentum. Despite stretched valuations, U.S. equities continue to benefit the most from a number of growth themes, namely advances in AI, continued reshoring of manufacturing, and renewed investments in infrastructure.
International
We have a neutral-underweight view on international equities. Europe continues to face increasing political risks, structural headwinds to global competitiveness and is sensitive to weakness in China. Outside of Europe, we are more positive on Japanese equities, in local currency terms, due to the push on corporate reform and the strong demand for Japanese goods and services due to a weak yen.
Emerging Markets
We have a neutral-underweight view on emerging market equities. China continues to face structural headwinds related to its property sector and deleveraging consumer. Backlash from key export markets, namely the U.S. and Europe, presents further challenges. However, valuations remain compelling in several key emerging markets, including Mexico, Brazil and South Africa, as supply chains are diversified from China to other parts of the world.
For further information, download the full Global Asset Allocation Perspectives Report.
As of June 30, 2024.
Commissions, trailing commissions, management fees and expenses may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed or insured by the Canada Deposit Insurance Corporation or any other government deposit insurer; their values change frequently, and past performance may not be repeated.
This document is provided for information purposes only. It is not to be relied upon as financial, tax or investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. Information contained in this document, including information relating to interest rates, market conditions, tax rules, and other investment factors, are subject to change without notice, and The Bank of Nova Scotia is not responsible to update this information. All third-party sources are believed to be accurate and reliable as of the date of publication, and The Bank of Nova Scotia does not guarantee its accuracy or reliability. Readers should consult their own professional advisor for specific financial, investment and/or tax advice tailored to their needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information. This commentary may contain forward-looking statements based on current expectations and projections about future general economic factors. Forward-looking statements are subject to inherent risks and uncertainties which may be unforeseeable and such expectations and projections may be incorrect in the future. Forward-looking statements are not guarantees of future performance and you should avoid placing undue reliance upon them. This publication and all the information, opinions and conclusions contained herein are protected by copyright. This publication may not be reproduced in whole or in part without the prior express consent of The Bank of Nova Scotia.
To the extent this document contains information or data obtained from third party sources, it is believed to be accurate and reliable as of the date of publication, but Scotia Global Asset Management does not guarantee its accuracy or reliability.
Scotia Global Asset Management is a business name used by 1832 Asset Management L.P., a limited partnership, the general partner of which is wholly owned by Scotiabank.
Scotiabank® includes The Bank of Nova Scotia and its subsidiaries and affiliates, including 1832 Asset Management L.P. and Scotia Securities Inc.
ScotiaFunds® and Dynamic Funds® are managed by Scotia Global Asset Management. ScotiaFunds and Dynamic Funds are available through Scotia Securities Inc. and from other dealers and advisors. Scotia Securities Inc. is wholly owned by The Bank of Nova Scotia and is a member of the Canadian Investment Regulatory Organization.
® Registered trademarks of The Bank of Nova Scotia, used under licence.
© Copyright 2024 The Bank of Nova Scotia. All rights reserved.