The next stage

The AI revolution is here. Investors can’t afford to be underinvested, and optimizing exposure to technology is key. We think this involves a diverse strategic exposure to the sector, balancing a focus between the beneficiaries of tech disruption and sector leaders including “Asia’s Super 8.” The current environment of high interest rates and low volatility also presents an opportunity to use structured solutions to position for further upside while protecting against downside.

While we hold a constructive view on technology, investors need to be mindful of concentration risks and overexposure. For those diversifying beyond technology, we see opportunities in quality companies (including regional champions in Europe and Asia); the energy transition, healthcare disruption, and water scarcity; and small- and mid-cap stocks. Exposure to these ideas can also be built up through structured investments.

We keep a preference for quality bonds. Robust economic growth and elevated inflation have kept bond yields high in recent months. But we expect yields to fall over the balance of the year as growth and inflation moderate. That makes now an attractive time to lock in yields, benefit from potential capital gains if yields fall, and diversify portfolios against risks. Beyond individual bonds, active and diversified bond exposure can provide investors with a convenient way to realize the full return potential of the asset class while managing credit and concentration risks.

Investors today are grappling with a complex financial environment. Some worry that the stock market has reached its peak, leading them to hold too much cash. Others may be overly focused on specific sectors, risking too much concentration in their portfolios. Against this backdrop, getting in balance is a key principle. We believe that only by diversifying across asset classes, regions, and sectors can investors effectively manage the tension between navigating shortterm market dynamics and growing long-term wealth.

We expect interest rates to fall in 2024. This means cash will progressively deliver lower returns, creating a risk for investors who do not proactively manage cash holdings. We believe investors should build a liquidity strategy beyond cash and money market funds, in favor of a combination of fixed-term deposits, bond ladders, and structured investment strategies to cover expected portfolio withdrawals over the next five years.

We believe that major currency pairings are likely to continue to trade in established ranges as most major central banks are set to cut interest rates in tandem. This presents an opportunity for investors to generate added portfolio income by trading the range in currencies, as well as in select commodities.

Alternative assets should be a key component of long-term portfolios, in our view. They can help diversify return sources and smooth portfolio returns. We currently see opportunities in strategies that offer unique return sources (credit hedge funds), provide access to fast-growing companies (private equity), and align with powerful long-term trends like digitalization and decarbonization (private infrastructure and thematic private equity funds).