Global Matters | Monthly
Market review & outlook
February 2024

With us, investing is personal

Contents

>>

01 >

02 >

Global market review & outlook

Market performance - Global

Page | 2

03 >

04 >

Market performance - UK

Asset allocation views

Page | 3>>

Global market review & outlook

Equity markets continued to surprise on the upside with a gain in February of 4.2% in developed
markets (MSCI World index) and 4.8% in emerging markets (MSCI Emerging Markets index).
MSCI World has returned 11% so far this year, 23% since the current surge in markets started inlate October 2023, and 44% since the low point of this cycle in mid-October 2022. The US has
led the way, with returns very similar to the World index, unsurprisingly given that the US market
capitalisation now represents over 70% of the world developed markets total.

Japanese equities return to 1989 peak
45000
Nikkei 225
40000

35000

While the Magnificent 7 grabs all the headlines and outpaced the S&P 500 in February with a returnof 8.2% versus 5.3% for the broader market, some of its 7 constituents are not direct beneficiariesof the AI boom which has driven most of the spectacular returns in markets over the past year.
Tesla and Apple are struggling with the tough China market and in Tesla’s case from the growing
competitive threat of cheap Chinese Electric Vehicles flooding the global market. Their share prices
have fallen this year, while two of the megacap tech stocks have driven returns, with big beats on
earnings announced in February: Nvidia is up by 60% YTD to end February and Meta by 38%, adding
a combined $1tn or about 2.5% to the capitalisation of the whole market.
Although the US dominates global markets, and its major indices reached all-time highs at the endof February, it is by no means the only market performing well. Japan has outpaced it this year witha return of 13.1% YTD, including 4.9% in February (in yen terms), and the Nikkei index finally brokethrough its previous high of December 1989, a 34-year long salutary reminder of the dangers of
riding a speculative, liquidity driven market bubble leading to outrageous valuations. The broader
Topix index in Japan remains 7% below its 1989 high, but with valuations still relatively attractive andJapan’s corporate sector focussed increasingly on shareholder returns while reaping the benefitsof sustained yen weakness (at its lowest level against the dollar since 1990), we expect further
outperformance.

30000

25000

20000

15000

10000

5000

0
1970

1976

1982

1988

1994

2000

2006

2012

2018

2024

Source: Bloomberg Finance L.P. as at 29 February 2024

Other markets also reached new highs, including Germany, perhaps surprisingly given that theGerman economy faces considerable challenges and has endured seven consecutive quarters ofnear-zero growth. The only notable underperformer was the UK, broadly flat in the month, YTD andover 12 months, in the face of a struggling economy and persistently high inflation. With improving
prospects ahead, some of the valuations now available offer particularly attractive opportunities.

>>

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Emerging markets have suffered a three-year period of sustained underperformance against
developed markets, primarily due to China’s woes, but the 8% recovery in China’s market inFebruary, helped by additional stimulus measures by the authorities and State sponsored buyingof equities, along with tentative signs of stabilisation and recovery in the economy, point to thepotential for improved performance, if not an inflection point, supported by attractive valuations
now on offer.
In contrast to equities, bond markets weakened as central banks pushed back on early rate cuts
as core measures of inflation remain too high and economic activity is proving resilient. Market
expectations of the Federal Funds rate at the end of 2024 moved from 3.75% at end December 2023
to 4.5% at the end of February, the additional 75bps bringing market implied rates in line with theFed’s latest median forecasts, with most of that move taking place in February. Bond yields reacted
accordingly, 2-year Treasury yields rising by over 40bps in the month and 10 year yields by 34bps.
Similar moves were seen in Europe and the UK. Over the month the JP Morgan Global Government
Bond Index (GBI) returned -1.5%.

Underlying these moves, which retraced most of the falls in yields in late 2023, has been a significant
rise in shorter term inflation expectations. Inflation over the next 2 years in the US as measured by
the 2-year inflation swap has moved from 2.0% at the end of 2023 to over 2.4% by end February.
The market has become more uncertain around the pace of decline in inflation and hence in theextent of rate cuts in 2024 following persistent strength in the jobs market and wages rising in realterms at a level which complicates the Fed’s task of bringing inflation down to its 2% target. Latest
data on average hourly earnings showed a rise of 0.6% month-on-month in January, the highest
in two years, and there are signs this is feeding into services inflation, where labour is a significant
component, with annualised 3-months core services inflation running at 6.5%.

US core PCE* inflation – goods prices deflating, services sticky
87
6

US yields rise YTD – market expectations for rate cuts reined in

5

5.5

4
%

5
4.5

3
2

4

1
0

3.5

-1

3

-2

2.5

2019
Nonprofits

2
Sep

Oct
2Y Treasury

Nov

Dec

Fed Funds Implied Rate Dec 24

Jan

Feb

2020
Services

Durable Goods

2021
Nondurable Goods

2022

2023

Personal Consumption Expenditures

Source: Bloomberg Finance L.P., as at 31 January 2024. *US Personal Consumption Expenditures index.

2 Year Inflation Swap

Source: Bloomberg Finance L.P. as at 8 March 2024.

“latest data on average hourly earnings
showed a rise of 0.6% month-on-month inJanuary, the highest in two years”>>

Page | 6

Page | 7>>

While bond markets have fallen in response to theseworries, equities have been boosted by the strength oftech and growth stocks, especially those benefittingfrom the AI boom, and have seemingly been preparedto look through the short-term concerns to the prospectof falling interest rates later this year and an increasing
probability of a soft landing for the economy. The
disturbing geopolitical events around the world appear to
be contained with limited risk of a wider conflict in either
Ukraine or the Middle East, and evidence of continuing
problems in the US commercial real estate market, with
mid-sized US regional bank New York Community Bank
posting a shock loan loss provision on real estate loans,
were put down to idiosyncratic issues and caused only aminor ripple in the sector.
The resilience in the US economy has been accompanied
by signs of stabilisation in the UK and Europe, which havestagnated through the past 18 months. Leading indicators
have begun to improve in recent months, in the relatively
resilient services sector as well as in manufacturing
which has been especially depressed in Europe. Whileencouraging for the corporate sector, it adds to theconundrum faced by central banks in balancing the riskof loosening policy too soon before inflation has reachedtarget levels sustainably, against the risk of leaving it
too late, pushing interest rates increasingly higher inreal terms as inflation falls, unduly tightening financial
conditions and risking full-blown recession.
For investors, this makes it increasingly difficult to predictthe path of interest rates, but we remain confident thatthe monetary policy cycle is close to a turning point andrates in the US, UK and Europe will be cut significantly
during the second half of the year. That provides astrong foundation for rising bond and equity markets.
The challenge to that prospect is the sharp rise in mostequity markets in the past four months, discounting atleast some of the more positive environment ahead anddriving valuations higher, especially in growth stocks,
along with possible complacency around inflationaryrisks of tight labour markets, high fiscal spending in
the US, and geopolitical risks. We remain constructive
for risk assets over the course of the year, but expect aperiod of consolidation in equity markets, while taking
opportunities to add to positions in government bonds
and selective parts of the credit markets, where yields
have again become more attractive following the moves
higher this year.

>>

Page | 8“equities have been boosted by thestrength of tech and growth stocks,
especially those benefitting fromthe AI boom”

Page | 9>>

Market performance - Global (local returns) as at 29 February 2024
Asset Class / Region

Index

Ccy

1
3
month months

YTD

12
monthsDeveloped Markets Equities

Asset Class / Region

Index

Ccy

1
month

3
monthsYTD

12monthsProperty

United States

S&P 500 NR

USD

5.3%

11.9%

7.0%

29.8%

US Property Securities

MSCI US REIT NR

USD

1.9%

7.1%

-2.3%

4.2%

United Kingdom

MSCI UK NR

GBP

0.8%

3.2%

-0.2%

1.1%

Australian Property Securities

S&P/ASX 200 A-REIT Index TR

AUD

4.5%

16.6%

5.9%

11.2%

Continental Europe

MSCI Europe ex UK NR

EUR

2.4%

8.4%

4.4%

12.5%

Asia Property Securities

S&P Asia Property 40 Index NR

USD

-0.2%

-0.3%

-5.9%

-7.2%

Japan

Topix TR

JPY

4.9%

12.9%

13.1%

37.6%

Global Property Securities

S&P Global Property USD TR

USD

0.2%

5.0%

-3.7%

3.0%

Asia Pacific (ex Japan)

MSCI AC Asia Pacific ex Japan NR

USD

4.5%

4.1%

-0.5%

5.5%

Currencies

GlobalMSCI World NR

USD

4.2%

10.7%

5.5%

25.0%

Euro

USD

-0.1%

-0.8%

-2.1%

2.2%

UK Pound Sterling

USD

-0.5%

0.0%

-0.8%

5.0%

Emerging Markets Equities
Emerging Europe

MSCI EM Europe NR

USD

3.7%

8.3%

6.1%

30.0%

Japanese Yen

USD

-2.0%

-1.2%

-6.0%

-9.2%

Emerging Asia

MSCI EM Asia NR

USD

5.9%

3.6%

0.3%

6.9%

Australian Dollar

USD

-1.1%

-1.6%

-4.6%

-3.4%

Emerging Latin America

MSCI EM Latin America NR

USD

-0.2%

2.9%

-5.0%

22.4%

South African Rand

USD

-2.7%

-1.8%

-4.4%

-4.4%

China

MSCI EM China NR

USD

5.3%

1.5%

-0.6%

3.7%

Commodities & Alternatives

BRICs

MSCI BRIC NR

USD

8.4%

-5.4%

-3.1%

-14.1%

Commodities

RICI TR

USD

-0.3%

-0.7%

1.3%

0.5%

Global emerging markets

MSCI Emerging Markets NR

USD

4.8%

3.8%

-0.1%

8.7%

Agricultural Commodities

RICI Agriculture TR

USD

-0.2%

-0.1%

1.3%

3.0%

Oil

Brent Crude Oil

USD

2.3%

1.0%

8.5%

-0.3%

Gold Spot

USD

0.2%

0.4%

-0.9%

11.9%

Bonds
US Treasuries

USD

-1.3%

1.8%

-1.5%

2.4%

Gold

US Treasuries (inflation protected) BBgBarc US Government Inflation Linked TR

USD

-1.1%

1.8%

-0.9%

2.4%

Interest Rates

Current Rate

US Corporate (investment grade)

BBgBarc US Corporate Investment Grade TR

USD

-1.5%

2.6%

-1.7%

6.0%

United States

5.50%

US High Yield

BBgBarc US High Yield 2% Issuer Cap TR

USD

0.3%

4.0%

0.3%

11.0%

United Kingdom

5.25%

UK Gilts

JP Morgan UK Government Bond TR

GBP

-1.1%

2.0%

-3.4%

0.9%

Eurozone

4.50%

UK Corporate (investment grade)

ICE BofAML Sterling Non-Gilt TR

GBP

-0.6%

2.7%

-1.5%

5.6%

Japan

-0.10%

Euro Government Bonds

ICE BofAML Euro Government TR

EUR

-1.2%

1.9%

-1.7%

5.2%

Australia

4.35%Euro Corporate (investment grade) BBgBarc Euro Aggregate Corporate TR

EUR

-0.9%

2.0%

-0.7%

6.6%

South Africa

8.25%Euro High Yield

BBgBarc European HY 3% Constrained TR

EUR

0.4%

4.1%

1.1%

10.0%

Japanese Government

JP Morgan Japan Government Bond TR

JPY

0.4%

0.0%

-0.4%

-0.9%

Australian Government

JP Morgan Australia GBI TR

AUD

-0.4%

2.7%

-0.2%

2.9%

Global Government Bonds

JP Morgan Global GBI

USD

-1.5%

1.0%

-3.1%

1.3%

Global Bonds

ICE BofAML Global Broad Market

USD

-1.5%

1.4%

-2.8%

2.9%

Global Convertible Bonds

ICE BofAML Global Convertibles

USD

1.4%

4.9%

0.0%

7.0%

Emerging Market Bonds

JP Morgan EMBI+ (Hard currency)

USD

1.4%

5.3%

0.1%

10.3%

>>

Page | 10

JP Morgan United States Government Bond TR

Source: Bloomberg Finance L.P. , Momentum Global Investment Management. Past performance is not indicativeof future returns.

Page | 11>>

Market performance - UK (all returns GBP) as at 29 February 2024
Asset Class / Region

Index

Local
Ccy

1
3
month months

YTD

12
monthsEquities

Local
Ccy

1
3
month months

YTD

12
months

GBP

1.0%

5.0%

-2.5%

-1.2%

Euro

GBP

0.4%

-0.8%

-1.3%

-2.7%

US Dollar

GBP

0.5%

0.0%

0.8%

-4.8%

Japanese Yen

GBP

-1.5%

-1.2%

-5.2%

-13.5%

GBP

0.5%

-0.7%

2.5%

-3.6%

Agricultural Commodities Rogers International Commodity (RICI) Agriculture TR

GBP

0.6%

-0.1%

2.4%

-1.2%

Oil

Brent Crude Oil

GBP

3.1%

1.0%

9.8%

-4.4%

Gold

Gold Spot

GBP

1.0%

0.4%

0.2%

7.3%

Asset Class / Region

Index

Property

UK - All Cap

MSCI UK NR

GBP

0.8%

3.2%

-0.2%

1.1%

Global Property Securities S&P Global Property TR

UK - Large Cap

MSCI UK Large Cap NR

GBP

0.6%

2.6%

-0.5%

-0.5%

Currencies

UK - Mid Cap

MSCI UK Mid Cap NR

GBP

1.1%

6.0%

-0.9%

4.8%

UK - Small Cap

MSCI Small Cap NR

GBP

-1.2%

5.2%

-3.1%

-0.9%

United States

S&P 500 NR

USD

6.1%

11.9%

8.3%

24.5%

Continental Europe

MSCI Europe ex UK NR

EUR

2.7%

7.5%

3.1%

9.9%

Japan

Topix TR

JPY

3.2%

11.5%

7.4%

19.5%

Asia Pacific (ex Japan)

MSCI AC Asia Pacific ex Japan NR

USD

5.3%

4.1%

0.6%

1.1%

Global developed markets

MSCI World NR

USD

5.1%

10.7%

6.7%

19.8%

Global emerging markets

MSCI Emerging Markets NR

USD

5.6%

3.8%

1.0%

4.3%

Bonds
Gilts - All

ICE BofAML UK Gilt TR

GBP

-1.2%

2.0%

-3.6%

0.7%

Gilts - Under 5 years

ICE BofAML UK Gilt TR 0-5 years

GBP

-0.5%

1.0%

-0.8%

3.2%

Gilts - 5 to 15 years

ICE BofAML UK Gilt TR 5-15 years

GBP

-1.7%

1.6%

-3.5%

2.0%

Gilts - Over 15 years

ICE BofAML UK Gilt TR 15+ years

GBP

-1.4%

2.9%

-6.2%

-2.5%

Index Linked Gilts - All

ICE BofAML UK Gilt Inflation-Linked TR

GBP

0.3%

2.0%

-4.7%

-2.3%

Index Linked Gilts - 5 to 15 years

ICE BofAML UK Gilt Inflation-Linked TR 5-15 years

GBP

-0.8%

1.5%

-3.0%

3.0%

Index Linked Gilts - Over 15 years

ICE BofAML UK Gilt Inflation-Linked TR 15+ years

GBP

1.4%

2.8%

-6.6%

-7.1%

UK Corporate (investment grade)

ICE BofAML Sterling Non-Gilt TR

GBP

-0.6%

2.7%

-1.5%

5.6%

US Treasuries

JP Morgan US Government Bond TR

USD

-0.6%

1.8%

-0.8%

-2.0%

US Corporate (investment grade)

BBgBarc US Corporate Investment Grade TR

USD

-0.8%

2.7%

-0.9%

1.4%

US High Yield

BBgBarc US High Yield 2% Issuer Cap TR

USD

0.3%

4.0%

0.3%

11.0%

Euro Government Bonds

ICE BofAML Euro Government TR

EUR

-1.2%

1.9%

-1.7%

5.2%

Euro Corporate (investment grade) BBgBarc Euro Aggregate Corporate TR

EUR

-0.9%

2.0%

-0.7%

6.6%

Euro High Yield

BBgBarc European High Yield 3% Constrained TR

EUR

0.4%

4.1%

1.1%

10.0%

Global Government Bonds

JP Morgan Global GBI

GBP

-0.7%

1.1%

-2.0%

-2.9%

Global Bonds

ICE BofAML Global Broad Market

GBP

-1.5%

1.4%

-2.8%

2.9%

Global Convertible Bonds

ICE BofAML Global Convertibles

GBP

1.4%

4.9%

0.0%

7.0%

Emerging Market Bonds

JP Morgan EMBI+ (Hard currency)

GBP

2.2%

5.3%

1.3%

5.8%

>>

Page | 12

Commodities & Alternatives
Commodities

Rogers International Commodity (RICI) TR

Interest Rates

Current Rate

United Kingdom

5.25%

Source: Bloomberg Finance L.P. , Momentum Global Investment Management. Past performance is not indicativeof future returns.

Page | 13>>

—March 2024

Asset allocation views
Score
MAIN ASSET CLASSES

-

/

+

++ +++-/+++ +++Overall View
The continued move higher for risk assets year to date, on the back an improving ‘soft landing’
growth outlook, is welcome, but leaves less room for upside surprise. Our fixed income view is largely
constructive, more so in sovereigns today which offer attractive nominal and real yields, but we
recognize risk premia on corporate credit are thin today. Alternative assets remain a good diversifierof returns, especially favourable should market volatility increase. Cash provides optionality on any
pullback as well as a decent yield, but increasingly we prefer to lock in rates further out by extending
duration.

Change --//—

--

-

/

+

++

+++

UK equities remain the conviction valuation call with the UK remaining the cheapest developed market.
There is little obvious catalyst to rerate, but the attractive earnings yields continue to draw in private
and overseas buyers. Japan remains attractive both in valuation terms and on improving fundamentals.
US equities continue to show a worrying lack of breadth in the continuing rally, but the opportunity
set for active managers grows. European equities look reasonably attractive, but the most compellingmarkets remain the UK and Japan which trade at a discount to global peers and offer healthy dividends.

Fixed Income—

Alternatives

—

Cash

—

Developed Equities—

UK Equities—

European Equities—

US Equities—

Japanese Equities—

Emerging Market Equities—

ChangeFIXED INCOME

//—Government—

Index-Linked—

Investment Grade Corporate—

High Yield Corporate—

Emerging Market Debt—

Convertible Bonds

—

Score

--

--

—

Score

---

---

Change//—Equities

Score
EQUITIES

Score+

Change

---

--

---

--

---

--

/

+

++ +++

After a late year end rally and subsequent modest reset, global treasury yields offer reasonable value
today, and we maintain our overweight government view. Inflation linked bonds offer attractive real
yields but are not cheap today. Despite offering alluring all in yields, we think the spreads offered today
on investment grade and riskier high yield corporate bonds do not compensate investors adequately
for the underlying fundamental credit risk. Although defaults remain low and the growth outlook has
moderated, financial conditions remain somewhat tight today. We prefer shorter duration bonds inboth developed and emerging markets, particularly high-grade credit.

-

/

+

++

+++

Commodity prices are likely to remain idiosyncratic supply and demand driven stories with price moves
exacerbated by geopolitical risk which has taken gold to new highs. Alternatives continue to offer
diversification benefits but compete today with higher yielding cash and bonds. Increasing discounts in
NAVs in private equity appear overly pessimistic, and we upgrade our view. Infrastructure and specialist
financials remain attractive. Our liquid alternatives continue to offer attractive diversification benefits
during periods of market uncertainty, but the bar has been raised for the performance after the great
rate reset.

-

/

+

++

+++

-

SPECIALIST ASSETS/ALTERNATIVES //—Commodities—

Property—

Infrastructure—

Liquid Alternatives—

Private Equity

Specialist Financial

—

Score
CURRENCIES vs. USD

Change
//—

GBP

—

EUR

—

JPY

—

Gold

—

“the most compelling markets
remain the UK and Japan
which trade at a discount toglobal peers and offer healthy
dividends”

Against long term valuation metrics, Sterling and Yen remain cheap relative to the Dollar. The Bankof Japan’s continuing policy of yield curve control, in the face of other central bank policy hikes, hascrushed the Yen in recent years. The higher for longer narrative in the US has buoyed the dollar whichlooks somewhat expensive as rates look set to fall later this year, but its safe haven status at a time ofheightened geopolitical risk assures a diversification premium. Gold’s status as a haven asset means
it remains a useful diversifier, but its recent run higher makes it look somewhat expensive versus real
rates today.

The asset allocation views are updated at the end of each quarter unless otherwise stated.

>>

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