MARKETS & INVESTING
Given sluggish growth and the BoE ’ s higher confidence in the disinflation process by spring , we expect the first rate cut in May or June , with up to five 25bp rate cuts in total .
5 . US and eurozone inflation US inflation is likely to drop decisively during 2024 , as transitory pandemicrelated supply and demand shocks fade . In fact , all the key components of the Consumer Price Index ( CPI ) basket faced significant pandemic-related shocks . Today , those effects are rapidly reversing . We expect US core Personal Consumption Expenditures to fall from 3.5 % to below the consensus estimate of 2.6 % by the end of 2024 . We also expect rapid disinflation in the eurozone , but for different reasons . Compared to the US , we see less evidence of inflationary pressures in the region due to overheating economies . Instead , pressures on core inflation in the eurozone appear to be largely ‘ imported ’, for example with inflation being exacerbated by the energy shock of 2022 . As these dynamics fade or reverse , we expect inflation to retreat to 2.0 %.
6 . Japanese equities Japanese equities regained meaningful investor interest in 2023 . In 2024 , the most important question is whether this outperformance is sustainable . The market is currently supportive of Japan ’ s rejuvenation , and we share that outlook in the medium term , but recognise it might not be all smooth sailing in the future . With valuations now in line with the long-term median , earnings growth will become the key driver for total return . Although we are constructive on Japanese equities in 2024 , there are risks to which we should pay attention .
7 . China A temporary rebound in Chinese equities is possible in the near term , given government support , inexpensive valuations and lightened positioning . However , investors are likely to look through any temporary respite , as structural issues remain entrenched . Property issues in China are likely to be a headwind for its economy in 2024 and beyond , as roughly 70 % of household wealth in China is tied to property value . Additionally , the political risk premium on China is likely too high for many . We evaluate opportunities in three distinct areas : markets that have already meaningfully repriced ; markets that have experienced modest valuation changes , but at defendable levels ; and markets where we expect continued valuation softening . In all markets we see opportunities ahead in 2024 .
As of 31 January 2024 . For professional client use only . The value of investments and the income from them may go down as well as up and you may not get back the amount you originally invested . Marketing communication issued by Morgan Stanley Investment Management Limited (“ MSIM ”). Authorised and regulated in the UK by the Financial Conduct Authority . Registered Office : 25 Cabot Square , Canary Wharf , London E14 4QA . Registered in England and Wales No . 1981121 . This material is not a product of Morgan Stanley ’ s Research Department and should not be regarded as a research material or a recommendation . MSIM has not authorised financial intermediaries to use and to distribute this document , unless such use and distribution is made in accordance with applicable law and regulation . Additionally , financial intermediaries are required to satisfy themselves that the information in this document is suitable for any person to whom they provide this document in view of that person ’ s circumstances and purpose . MSIM shall not be liable for , and accepts no liability for , the use or misuse of this document by any such financial intermediary . The whole or any part of this work may not be reproduced , copied or transmitted or any of its contents disclosed to third parties without MSIM ’ s express written consent . The views and opinions are those of the author as of the date of publication and are subject to change at any time due to market or economic conditions and may not necessarily come to pass . The views expressed do not reflect the opinions of all investment personnel at Morgan Stanley Investment Management ( MSIM ) and its subsidiaries and affiliates ( collectively “ the Firm ”) and may not be reflected in all the strategies and products that the Firm offers . Forecasts and / or estimates provided herein are subject to change and may not actually come to pass . Information regarding expected market returns and market outlooks is based on the research , analysis and opinions of the authors or the investment team . These conclusions are speculative in nature , may not come to pass and are not intended to predict the future performance of any specific strategy or product the Firm offers . Future results may differ significantly depending on factors such as changes in securities or financial markets or general economic conditions . All information contained herein is proprietary and is protected under copyright law . © 2024 Morgan Stanley
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