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Interest rates should start to come down as central banks move on from fighting inflation

Source: abrdn, Haver, November 2023. Forecasts are offered as opinion and are not reflective of potential performance. Forecasts are  not guaranteed and actual events or results may differ materially.

  • Some emerging markets have already started to cut interest rates. Others are expected to follow this year.

  • The European Central Bank is likely to be the first in the developed economies to cut interest rates in 2024. 
  • We think the US Federal Reserve will also start to cut by the second half of 2024. Falling policy rates everywhere will mean lower bank deposit rates.
Why you should care: Inflation is falling in almost every major economy and will likely be back to where central banks want it by the end of this year. Lower inflation allows policymakers to cut interest rates. When this so-called ‘monetary easing’ happens, it will pull down interest rates in general, including bank deposit rates. As market rates fall, the price of bonds and other income-paying assets rise as they look relatively more attractive. This will deliver capital gains for investors.

Business cycles around the world are likely to diverge

Source: abrdn, Haver, November 2023. Forecasts are offered as opinion and are not reflective of potential performance. Forecasts are not guaranteed and actual events or results may differ materially.
  • Europe’s economy is set to shrink by the start of 2024. 
  • China’s growth will be held back by problems in the property sector, even as government policies prevent a more serious slowdown. 
  • The US economy is very strong, and it’s only expected to slow in mid-2024. 
Why you should care: Economic activity in the major economies is expected to slow in 2024, even though some economies will be more resilient than others. When growth loses momentum, less risky assets that offer investors predictable cash payments can often do better. That’s because they start to look relatively more attractive, compared to investments that may be affected more by the health of company earnings (which suffer in a downturn). 

Political uncertainty may mean more volatile financial markets

Source: abrdn, November 2023

  • There are many national elections in 2024, with the US presidential election particularly important to global economies and markets.
  • International political risks are still around, with the latest conflict in the Middle East and tensions between the US and China adding to uncertainty.
Why you should care: Investment values go up and down over a short period of time when markets are volatile. This increases the risk that investors make emotionally driven decisions at the worst times. Feelings of greed and fear can often push people to buy when markets are high and sell when they’re low. However, investments that deliver an income may take some pressure off. Knowing you’re receiving regular payments can help soften the raw emotions that arise from fast-changing market conditions.   

Income from different asset classes

Different investments can produce a regular income stream. Investors are able to select income-generating investments that best reflect their risk appetite. Take a closer look at three approaches:

Equities

Income and growth -Targeting dividend payments with the growth potential of stocks.

Strategies

  • Equity income

  • Global stocks

  • Emerging market stocks

  • Asian stocks

Real estate

Diversified income - Harnessing every dimension of real estate opportunity to meet client goals.

Strategies

  • Global Real Estate

  • Rental Income

  • Infrastructure

Fixed income

Resilient income - Delivering long-term payments in good times and less good times.

Strategies

  • Corporate Bonds

  • Emerging Markets Bonds

  • Sustainable Investing

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