HONG KONG SAR - Media OutReach Newswire - 7 December 2023 - Today, KGI Asia has released its 2024 Global Market Outlook, which covers Mainland China, Hong Kong, Taiwan, the US, Singapore, and Indonesia. The chances of a soft landing in the United States continue to increase, and the market expects that the federal interest rate has peaked. Investors see interest-rate cuts coming soon, probably in the middle of next year. What implications does the end of tightening monetary policy have for the market outlook? The mainland's deficit rate has increased, and China's economic policy continued to be introduced, how would the US Presidential election affect the market? Under this backdrop, we would recommend the "AAA" strategy for 2024:A - America large cap A - Asia including Japan A - A-grade bonds Global Macro and the US Global economic recovery from the COVID-19 pandemic has differed among regions and industries. The notion of the US economy making a soft landing began as mere speculation in May 2023, but there is now more evidence to support this consensus view. With inflation becoming more manageable, the Fed has decelerated interest rate hikes to the extent that many believe tightening policy will soon be over, and this is key to expectations for a US economic soft landing. However, we believe a US economic downturn will extend beyond 1H24F given the lagged effect of high interest rates, depletion of excess savings, limited wage growth ahead and negative wealth effect driven by declining home prices. Based on readings of the Economic Surprise Index, we believe US GDP growth reached its peak in 3Q23 and that a decline ahead seems inevitable. The key factor to watch is the pace of the decline. We believe the decline will be moderate, given no sign of the balance sheet style recession. As far as monetary policy is concerned, we expect the Fed to begin rate cuts in mid-2024F, likely by 100bps on a full-year basis, which exceeds the Fed's dot plot guidance of 50bps, as we think the Fed may have underestimated the odds of an economic slowdown worsening into a recession. To recap, the US stock market rallied in January-July and pulled back in August-October, primarily because uncertainties surrounding monetary tightening and rising Treasury yields weighed on stock valuations. Currently, the market is convinced that tightening is over, US stocks are making a comeback again. The current consensus is that US corporate earnings will grow 12% YoY in 2024F. While this appears somewhat optimistic, we think the optimism has to some extent been priced in. Valuation-wise, we expect continued pressure on stocks, especially growth stocks, before the Fed pivots to rate cuts. We expect the ongoing US stocks rebound to persist into 1Q24F before corrections take place in 2Q24F in the face of a more pronounced economic slowdown and uncertainties stemming from the US presidential election. US stocks should regain momentum in July next year when the outlook clears up. In terms of market style, we believe defensive and large-cap names will prevail before 4Q24F. Moreover, investors could increase allocation to growth stocks in 2Q24F, following declines in the risk-free interest rate. Overweighting cyclical and small-cap stocks would be advisable when the US economy troughs and heads back into recovery again in 4Q24F. Regarding bond investment, both short- and long-term Treasury notes are good investment targets before the commencement of rate cuts in mid-2024F. When rate cuts are just around the corner, investors should increase the weighting of long-term Treasury notes in their portfolios. As for corporate bonds, investment-grade corporate bonds are worth engaging during the 1Q-3Q 2024F; and if the economy bottoms out or recovers in 4Q24F, it would be an entry point to invest in non-investment-grade bonds due to narrow credit spreads. James Chu, Chairman at KGI Investment Advisory, says: "The economy is decelerating at an optimal pace, which is strong enough to put an end to the Fed's monetary tightening, but not to the extent of triggering concerns about a recession. US Treasury yields have consolidated in a downward direction from previous upswings, thanks to expectations for rate hike cessation and an economic soft landing, which have boosted global stock markets. We expect stock markets will be shored up by double-digit growth in 2024 corporate earnings, backed by restocking demand and easing inflation. That said, as interest rates will remain high in 1H24F, we think further upside for stock markets will be limited due to the lingering risk of an economic slowdown. Stock rallies will be stronger in 2H24 after a rate cut cycle begins." Mainland China and Hong Kong 2023 review: A disappointing post-COVID economy The Mainland economy grew by 4.5% in the first quarter of this year, beating estimates,...