Global Asset Allocation Perspectives

October 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 challenged…

… as the lagged impact of higher interest rates continues to slow the global economy. Should a recession occur, we currently do not expect a deep or prolonged contraction as the backdrop for businesses and consumers remains strong. Manufacturing activity may still weaken in 2024.

More modestly paced rate cuts are coming

Rate cuts are likely to continue but will coincide with further declines in inflation. A sharp economic contraction will be required for more aggressive reductions. Easing supply constraints and weakening demand have helped relieve inflation, but it remains elevated in many regions.

Risks remain

The impact of “higher for longer” interest rates will continue to create risks in financial markets. Central banks still have tools available to them to offset some of these risks as they materialize. Growing geopolitical tensions and increasing polarization pose additional risks to markets.

Asset allocation perspectives

Equities

We have a neutral view on equities overall relative to fixed income due to conflicting economic indicators.

The U.S. Federal Reserve has seen enough inflation progress to join the global easing cycle. We also saw surprisingly strong upward revisions in U.S. growth data, leading many analysts to reconsider their forecasts for a 2024 recession.

Year-to-date, fast-growing technologies (cloud, AI, GLP-1s) were strong in the first half, masking weaknesses in other industries. Despite a slowdown in these areas recently, other industries are now showing strength.

Fixed income

We have a neutral view on fixed income overall relative to equities.

Bond yields fell as the market priced in expectations for additional rate cuts in North America. Despite the decline, starting yields remain elevated, offering further opportunities for capital appreciation as central banks continue to lower key lending rates.

In the immediate short term, bond yields will be sensitive to signs of a resilient U.S. economy, as much of the third quarter yield decline was in anticipation of aggressive rate reductions from the U.S. Federal Reserve.

Canada

We have a neutral-overweight view on Canadian equities. The Bank of Canada cutting rates earlier than other major central banks should help spur underlying economic growth. Canadian equities are attractively priced, especially relative to U.S. equities. Canadian equities could also benefit from upward price movements within energy markets.

U.S.

We have an overweight view on U.S. equities. The U.S. economy remains resilient, and momentum remains positive. Inflation has come down and the Fed kicked off its interest rate cutting cycle. Easing policy should provide further support. Despite stretched valuations, the U.S. continues to benefit from several growth themes. Strength also spread to other sectors like utilities and real estate.

International

We have an underweight view on international equities. Europe continues to face structural headwinds affecting global competitiveness, particularly energy insecurity and sensitivity to weakness in China. Outside of Europe, we have a neutral stance on Japanese equities as excitement over corporate reforms fades, and a recovering yen could weigh on local equity returns in the near term.

Emerging Markets

We have a neutral view on emerging market equities. While China still faces structural challenges related to its property sector, broad deleveraging, and tensions with the U.S., a new monetary easing and fiscal stimulus framework was announced. In other emerging markets, compelling valuations are roughly in-balance with rising political risks, keeping us neutral overall.

For further information, download the full Global Asset Allocation Perspectives Report.

Legal

As of September 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.

The information provided in this document is not intended to be investment advice. Investors should consult their own professional advisor for specific investment and/or tax advice tailored to their needs when planning to implement an investment strategy to ensure that individual circumstances are considered properly and action is taken based on the latest available information. Information contained in this document, including information relating to interest rates, market conditions, portfolio positioning and other factors are subject to change without notice. Scotia Global Asset Management is not responsible for updating the information and views expressed. 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. The information provided is not intended to be investment advice.

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