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Monthly Insights: Global Multi-Asset (July 2024)
Overweight to growth maintained, defensives kept at neutral

By the Multi-Asset Team
24 July 2024

Snapshot
The markets powered higher, with US equities reaching new highs thanks to the stronger-than-expected earnings
and the upbeat outlooks of the largest tech companies. Sentiment was also supported by improving odds of the US
Federal Reserve (Fed) cutting interest rates as early as September amid weakening economic data and lower-thanexpected inflation. Labour data was also supportive, with the US unemployment rate returning to a level last seen in
November 2021. The path of least resistance seems to be upwards, with the markets now expecting two rate cuts by
the Fed in 2024. The coming earnings season will likely dictate the direction of risk assets, while volatility is expected
to pick up in the upcoming months due to the US elections in November. However, it seems that the Fed has
successfully engineered a “no landing” scenario, which will likely be cheered on by markets and benefit risk assets.
In Europe, investors breathed a sigh of relief as France avoided the worst-case scenario of Marine Le Pen’s National
Rally party winning an absolute majority and gaining direct control in the National Assembly. In a surprise result, theleft-wing New Popular Front (NFP) won the most seats, resulting in a hung parliament scenario. This outcome, which
implies that there is unlikely to be any extreme outcomes with no party holding an absolute majority, is positive forthe country. In the UK, the opposition Labour Party won a huge parliamentary majority in the general election, which
was in line with market expectations.

Cross-asset1
For the month of July, we retained both our overweight to growth assets and our neutral position on defensives. The
outlook for growth remains positive as global central banks have started monetary easing, with Europe and Canada
leading the way by cutting their interest rates in June. As inflation ebbs globally and economies weaken, there is now
more leeway for central banks to cut rates to balance growth. Typically, risk assets do best in an environment when
PMIs move from contraction to expansion, supported by accommodative monetary policies. We continue to identify
opportunities in a new capex cycle, especially in artificial intelligence (AI) and green initiatives.
Within the growth cross-asset scores, we increased the overweight in developed market (DM) equities by adding to
the US, on the back of better visibility driven by secular growth themes. We also added to Europe, given the nascent
cyclical opportunities associated with an upturn in global manufacturing. This adjustment was partially offset by
reducing the overweight in Japan. We continue to like Japan, but with a slightly reduced emphasis. We also increased
infrastructure marginally to reflect our constructive view on the asset class, driven by increasing energy demands due
to AI development. We increased our underweight to emerging market (EM) equities due to the better risk rewards
found in DM equities despite relative valuation. EM equities continue to be plagued by both structural and cyclicalissues, which will take time to resolve.
Within defensives, we marginally reduced investment-grade (IG) credit, bringing it to neutral, while we increased DM
sovereigns, though they remain underweight. IG credit spreads remain tight with certain countries (such as the US)
trading close to the post-global financial crisis lows. We see relatively more attractive spreads in Canada, where a
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dovish central bank should support both spreads and outright interest rates. For DM sovereigns, we have a similar
preference for Canada and the EU, where we see room for central banks to cut rates, which should be positive.
However, due to the highly inverted bond yield curves, we prefer to retain a cautious view on long-dated bonds as
the cost of owning them from a hedged yield perspective is relatively high.
1 The Multi Asset team’s cross-asset views are expressed at three different levels: (1) growth versus defensive, (2) cross asset within growth anddefensive assets, and (3) relative asset views within each asset class. These levels describe our research and intuition that asset classes behave
similarly or disparately in predictable ways, such that cross-asset scoring makes sense and ultimately leads to more deliberate and robust portfolio
construction.

Asset Class Hierarchy (Team View2)

2The asset classes or sectors mentioned herein are a reflection of the portfolio manager’s current view of the investment strategies taken on behalfof the portfolio managed. The research framework is divided into 3 levels of analysis. The scores presented reflect the team’s view of each asset
relative to others in its asset class. Scores within each asset class will average to neutral, with the exception of Commodity. These comments should
not be constituted as an investment research or recommendation advice. Any prediction, projection or forecast on sectors, the economy and/or
the market trends is not necessarily indicative of their future state or likely performances.

Research views
Growth assets
Growth assets continued to rally to new highs during the month as sentiment turned to a risk-on mode, fuelled byweaker economic data and easing global inflation. Manufacturing indices are also rebounding from recent lows,suggesting a potential upcycle. Certain sectors, such as tech, which continue to show strong sales and earnings
growth, rallied strongly. However, this area is starting to appear somewhat crowded. As such, we seek to find othersources of growth as part of our diversification. One such secular growth theme lately gaining widespread attention
is obesity drugs.
GLP-1 and GIP: what are they?
Glucagon-like peptide-1 (GLP-1) and glucose-dependent insulinotropic polypeptide (GIP) are hormones in thegastrointestinal tract responsible for stimulating insulin secretion. Pharmaceutical companies had developed longacting GLP-1-mimicking drug for diabetes, but they soon discovered that patients were losing weight as their appetite
was suppressed. These incretins also slow down gastric emptying, which increases the patient’s sense of fullness. Dueto its safety profile and weight-loss efficacy, a higher dose standalone obesity drug was approved by the US Food andDrug Administration (FDA) in 2021.

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GIP acts in a similar way to GLP-1 by stimulating metabolism, particularly fat burning. Hence, it was added together
with GLP-1, which increased the efficacy of weight loss. The dual-acting obesity drug was finally approved specificallyto treat obesity in 2023.
More recently, these drugs were approved by the FDA for the prevention of cardiovascular diseases; ongoing trials
aim to show their effectiveness in reducing various diseases such as chronic kidney diseases, apnoea and diabetes.
With the approvals by authorities, we believe it would pave the way for insurance coverage and make these drugs
available to the general public. The total addressable market size for these drugs is projected to grow from US dollar(USD) 14 billion to USD 128 billion by the turn of the decade.
Chart 1: Estimated global obesity market opportunity
140
120(USD, billion)

100
80
60
40
20
0
2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E 2034E 2035E
Source: Bloomberg June 2024

We think that the theme is still in its early stages with significant growth potential ahead. In terms of performance,companies with obesity drugs have done significantly better than those without. When we compare the two largest
pharmaceutical companies with obesity drugs with the two largest pharmaceutical companies (by market
capitalisation) without obesity drugs, we can see a big difference in performance over time.
Chart 2: Companies with obesity drugs (GLP-1/GIP) versus those without
450
400
350
300
250
200
150
100
50
0

GLP-1 / GIP drug companies

MSCI AC World Healthcare Index

Non GLP-1 / GIP drug companies
Rebased to 100 on July 2021
Source: Blomberg July 2024

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We think that the incumbent companies will likely face more competition over time. However, the lengthy process ofobtaining FDA approvals and the huge capex involved in setting up production should continue to benefit theincumbents as they innovate and evolve their product offerings. For example, they might come up with new methodsof administration like oral application and thereby develop moat-like franchises.
Conviction views on growth assets— Adding to US secular growth: US tech-related stocks continued marching higher assecular and cyclical tailwinds remain strong. Within the US, non-tech stocks lagged thebroader rally but we expect them to start catching up as the economy slows andinflation comes under control against the backdrop of a more dovish monetary policy.
— Adding to Europe with elections out of way: We believe Europe provides balance in a
portfolio context, offering value and cyclical growth opportunities at still attractive
valuations, particularly with anticipated rate cuts. The UK is also seen offering valuation
opportunities with rate cuts likely on the horizon.
— Taking some profit in Japan equities: We reduced our overweight to Japan in order to
add to the US and Europe, where we see better risk rewards. We are still convinced of
the structural reform story in Japan, where we expect companies to start deploying
their capital via capex or by returning it to shareholders.
— Still positive on commodity-linked equities: We continue to maintain our overweight
position as the asset class continues to provide good diversification opportunities
against inflation. The fundamentals of the sector remain compelling due to both
cyclical and secular factors.
Defensive assets
Changes within defensive assets were relatively small this month, with adjustments made within Canadiangovernment bonds and European IG credit. Currently the portfolios are positioned to take advantage of rate cuts
occurring in Canada and Europe. The two locations have long been viewed as the most likely to move rates first, due
to below-trend growth and the rapid pace at which inflation is returning to the targets set by their central banks. This
contrasts with the US, where inflation still remains above 3% and growth looks more resilient than expected. While
we think that the Fed could adopt a more hawkish stance than the market expects, we also believe that it is preparing
for its first rate cut later in 2024. Within the EM local currency positions, we continue to like India due to thecontinuation of current policies under Indian Prime Minister Narendra Modi’s administration following his election
win, as well as a stable Indian rupee.
French elections
French President Emmanuel Macron took a huge gamble early in June by calling for early parliamentary elections
after having suffered a heavy defeat at the European Parliament elections. This spooked the markets, and 10-year
French bond yields climbed as much as 12 basis points to 3.28%. Investors were worried about far-right populists
taking control of the parliament and pursuing major parts of Le Pen’s expansive fiscal and protectionist “French first”
agenda. Since France has one of the larger deficits in Europe, any political party with the power to expand the deficit
could be viewed negatively by the market.
Chart 3: French government bond yields spike after Macron calls for snap election
France/Germany yield to maturity
1.35

Snap election called

1.30

(%)

1.25
1.20
1.15
1.10
1.05

Source: Bloomberg, July 2024

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To the surprise of many, the second round of voting for the French elections early in July ended with the left-wing
New Popular Front (NFP) party winning the most seats, while Macron’s centrist party won the second largest numberof seats and Le Pen’s National Rally party trailing in third.
The NFP party campaigned on left-leaning policies, which include increasing the minimum wage, capping the prices
of essential goods and removing the pension reform that increased the retirement age to 64. The party proposed
increasing tax rates on businesses to fund the spending, trying to show that the overall cost of their program would
be neutral. Given France has one of the larger fiscal deficits in the eurozone at around -5.5% of GDP, the bond market
was right to be unnerved about what these policies could represent.
Positively, however, given that it is a hung parliament and each party is almost equally represented, this would meanthat it will be difficult for any true legislative change to be pushed through. This will create instability for the French
political system. However, it creates more certainty for financial markets, and much like the Indian election result, it
may eventually be viewed as a neutral outcome. We would expect the French/German government bond yield spreadto continue contracting towards its pre-snap election level; considering the interest rate-cutting cycle that theEuropean Central Bank is entering, we continue to favour French government bonds as a defensive asset within
portfolios.
Conviction views on defensive assets— Short-dated IG credit: Credit spreads remain at fair levels, but many markets still exhibit
inverse yield curves, making longer-dated credit less appealing. Until curves steepen,
shorter-dated credit is likely to remain our preference.
— Gold remains an attractive hedge: Gold has been resilient in the face of rising real yields
and a strong dollar, while proving to be an effective hedge against geopolitical risks
and persistent inflation pressures.
— Attractive yields in EM: Real yields in this sector are generally very attractive, and wehave a preference for quality EM currencies which can provide strong levels of yield,
such as the Indian rupee.

Process
In-house research to understand the key drivers of return:
Valuation
Momentum
Macro
Quant models
to assessrelative value

Quant models tomeasure asset
momentum overthe medium term

Analyse macro
cycles with tested
correlation to asset

Example for
equity use 5Y
CAPE, P/B & ROE

Used to inform
valuation model

Monetary policy,
fiscal policy,
consumer, earnings& liquidity cycles

N

N

Example+Final Score +YOUR GOALS, OUR COMMITMENT.

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