July 1, 2024

Global Asset Allocation

Quarterly Report

Quarterly Portfolio Outlook:Recession Signs Increase
Executive Summary

In this Issue
02-09 Overview
10-11

Risks To OurView• Clear signs are emerging of a slowdown in US growth, as tight monetary policy
finally starts to bite. Risk assets have so far shrugged this off, with a frenzy in AIstocks. But this is not sustainable. As recession approaches, we suggest increasing
further the defensiveness of portfolios.
• We remain underweight equities and credit, neutral on cash, and overweight ongovernment bonds.

21-23• But within equities, we downgrade two cyclical commodities-driven markets,
Canada and Australia, to underweight. We upgrade the defensive Consumer
Staples sector to overweight, and downgrade Industrials to underweight. We move
underweight Commodities, especially metals.

32-34 Commodities
35		Currencies
36-37 Private Markets& Alternatives
38		 Recommended
Asset Allocation

RO

EP

31		Corporate 		CreditR29-30 Government
Bonds• Although the Euro Area is highly cyclical, growth will pick up in the short term.
Also, US stocks might underperform early in the recession, as AI stocks sell off.
We raise Euro Area stocks to neutral, and pare our US weighting, while remaining
overweight• We remain overweight government bonds, which should prove an attractive hedge
in a recession. But, amid worries about rising government budget deficits, we willgo overweight duration only when the US labor market meaningfully weakens.
European and Canadian government bonds are the most attractive. Easing
inflation worries mean we dial back our double-overweight on TIPS.

E

26-28 Country
Allocation
AdjustmentsPL

24-25 Global 		EquitiesMGlobal 		
EconomyT

12-20  What Our		
Clients Are
AskingSA• We remain neutral on the USD, and continue to see JPY and CHF as the bestsafe-haven currencies. For the same reasons as with equities, we raise our EUR
recommendation to neutral, and downgrade CAD to underweight.
• In private markets, we see opportunities in Private Equity, especially in Asia andlate-stage Venture Capital. We also like Distressed Debt, and see some selective
value plays in core Office Real Estate, where prices have fallen significantly.
Editorial Board
Garry Evans
Chief Global Asset
Allocation Strategist

Recommendation Changes
Asset Class

Category

This Month
Recommendation

Last Month
Recommendation

Global Equities

Australia

Underweight

NeutralGlobal Equities

CanadaUnderweight

NeutralGlobal Equities

Euro Area

NeutralUnderweight

Global Sectors

Consumer Staples

Overweight

NeutralGlobal Sectors

Industrials

Underweight

NeutralPrivate Markets & Alternatives

Commodities

Underweight

NeutralPrivate Markets & Alternatives

Structured products

Overweight

Underweight

Chen Xu
Research Associate

Global Fixed Income

Inflation-linked

Overweight

Strong Overweight

Currencies

EUR

NeutralUnderweightPeter Berezin
Senior Vice President

Currencies

CADUnderweight

NeutralXiaoli Tang
Associate Vice President
Juan Correa-Ossa
Associate Vice President
Felix-Antoine
Vezina-Poirier
Associate Editor

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GlobalAssetAllocation

Quarterly Portfolio Outlook:
Recession Signs Increase

July 1, 2024

Recession Signs Increase
Recommended Allocation

Overview

Global Asset Allocation

Over the past couple of months,
concerns about the global economy
have shifted from sticky inflation
to slowing growth. Annual inflation
remains above central banks’ 2%
target and, in some countries,
ticked up in the latest data point ortwo (Chart 1). But growth is now
becoming the bigger problem: The
impact of two-and-a-half years oftight monetary policy is at last being
felt, even in the US.

Equities
Fixed Income
Cash
Portfolio Volatility–+–+–+GAA Relative To Benchmark

RO

USEuro Area
Japan
CanadaAustralia
UK
China
EM Ex China

TGlobal Equities*

EP

Global Fixed Income**–+–+–+–+

R

Government
Investment GradeHigh-Yield
EM DebtDuration
Inflation-linkedE

CHART 1

Global SectorsSAMPLInflation Is Still Too High...

Financials
Info Tech
Healthcare
Communications Serv.
Industrials
Consumer Disc.
Consumer Staples
EnergyMaterials
Real Estate
Utilities
Private Markets & Alternatives
Hedge Funds
Real Estate
Private Equity
Private Credit
Farmland/Timberland
Structured Products
Commodities
GoldCurrencies

2024

USD
EUR
JPY
GBP
AUD
CAD
CHF
CNY
EM Currencies
Previous

Current* RELATIVE TO MSCI ACWI (UNHEDGED).
** RELATIVE TO BLOOMBERG GLOBAL AGGREGATE.

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02

GlobalAsset
AllocationQuarterly Portfolio Outlook:
Recession Signs Increase

July 1, 2024

CHART 3...But Growth Disappointments Are Now The
Bigger Worry

Slowdown Is Apparent In Retail Sales...

REPORT

CHART 22024

PLE2024SAM

The Citi Economic Surprise Indexes, after
a period of positive surprises at the end oflast year and the beginning of this year, havebegun to surprise to the downside everywherein major DM countries (Chart 2). The recent
run of US data has been disappointing: Retailsales (Chart 3), investment intentions (Chart4), and housing starts (Chart 5) are all turning
down in a way that normally happens only
ahead of recessions.

CHART 4...Capex Intentions...

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2024

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03