As the second half of the year approaches, the current market is facing a critical moment full of challenges and opportunities.

At the "UBS Wealth Management Media Sharing Meeting" held recently, UBS Wealth Management shared their outlook and investment strategy for the global and Chinese markets in the second half of 2024.

UBS Wealth Management's Asia Pacific investment director and macroeconomic manager, Hu Yifan, said that the market will face a series of key decision-making moments in the coming months, which will deeply influence the market direction. The Federal Reserve will carefully decide the timing and magnitude of interest rate cuts, which will not only affect the future of the US economy, but also have a chain reaction on the global financial market. At the same time, the United States is about to usher in a new presidential election, and the result will also have a profound impact on national policies and economic prospects.

Globally, investors are facing the choice of finding and seizing the best investment opportunities in a volatile market, with the aim of achieving asset appreciation and minimizing risks.

Three major trends worth paying attention to.

Hu Yifan pointed out that under the current economic background, there are three major trends worth paying special attention to and should make corresponding strategic arrangements for them.

The first is to make preparations for the decline in interest rates. Hu Yifan believes that global overall and core inflation have fallen from their highs. The US inflation rate has dropped from 9.1% in June 2022 to the current 3.3%, and is expected to further fall to 2.9% by the end of the year. The PCE price index that the Fed is concerned with has also fallen from its high point to 2.7%, and is expected to fall to 2.4% by the end of the year. Europe's inflation rate has also dropped from 10.6% in October 2022 to the current 2.6%, and is expected to be 2.4% by the end of the year. Therefore, major global central banks have started to cut interest rates. Switzerland cut interest rates twice this year in March and June, each time by 25 basis points. Sweden reduced interest rates in May, and Canada and the EU reduced interest rates in June. Hu Yifan believes that the UK may cut interest rates in August, and the US may begin to cut interest rates for the first time in September, with a reduction of 25 basis points, and may cut interest rates again in December. There is a possibility of two interest rate cuts this year. He emphasized that inflation down and interest rate cuts will boost the global stock and bond markets. The global stock and bond markets have seen a general rise since this year.

Secondly, AI opportunities should be seized. Hu Yifan explained that the investment of top technology companies has significantly increased, and the capital expenditures of the top four technology giants have reached as much as $200 billion this year. The acceleration of cloud computing means that AI realization rates are rising. Hu Yifan believes that artificial intelligence is the main opportunity for global development, similar to the rise of the Internet and tablet computers. In the next few years, the profit growth prospects of AI-related markets are clear, with strong competitive advantages. Hu Yifan is bullish on AI infrastructure and semiconductor companies driven by them. The profitability of these companies is higher than the global average and is expected to bring overall productivity improvement.

Thirdly, preparations should be made for the US election. This year is the US election year, and global investors need to prepare for potential election results. Hu Yifan believes that the probability of Trump and Biden winning is comparable, and the impact on the economy and stock market is completely different. Trump advocates tax cuts, which may benefit the economy and mergers and acquisitions opportunities for companies, but its trade policy and increased defense spending may have negative effects. Biden's reelection will continue existing policies, which will have a relatively neutral impact on the economy and stock market, and interest rates may show range fluctuations. As the voting day approaches, market volatility may rise, so it is necessary to manage downside risks and avoid making investment decisions based on political preferences.

Economic forecast: China's economy is expected to achieve a growth target of around 5%.

Hu Yifan said that the US economy is expected to achieve a soft landing, with a growth rate of about 2.3% in 2023, and inflation continues to decline, labor markets and consumer confidence gradually cool. It is expected that the Fed will begin to cut interest rates in September. The market expects interest rates to be cut 1-2 times this year, and the 10-year Treasury bond rate may drop from the current 4.2% to 3.85%.

China's economy is expected to achieve a growth target of around 5%. The data for the first quarter exceeded expectations, and consumption and investment were slightly weak, but the service-side consumption showed resilience. Hu Yifan said, "We expect consumption to grow by about 6% this year, and recovery in auto sales is expected to drive overall consumption growth. Measures to stabilize the real estate market are expected to play a role, and the growth target of 5% for this year is expected to be achieved."

Bullish on high-quality bonds and AI sectors.

Bullish on high-quality bonds and AI sectors.

No reason given.

No reason given.

Bullish on high-quality bonds and the AI sector.

Against the backdrop of the three major trends globally, Hu Yifan emphasized diversified investment layout. He said that the downward trend of interest rates is a certainty, and major central banks worldwide have started to cut interest rates, which will benefit high-quality bonds and the stock market. It is expected that the return of high-quality bonds will reach the middle-single digits, and the global stock market is expected to achieve a moderate return of 7%-8%.

Regarding bonds, Hu Yifan is bullish about high-quality bonds. With the start of the interest rate cut cycle, the potential returns of bonds will increase, and the comprehensive yield of 5-year national bonds is expected to reach 4.8%, and the 10-year national bonds may reach 5.8%.

Regarding stocks, he is more bullish on the AI sector, especially the middle-tier empowerment layer and AI infrastructure. "We also see great potential in China's AI ecosystem for monetization."

In addition, as global interest rates decline, the stock market will benefit. Europe took the lead in cutting interest rates, and consumer stocks and small-cap stocks have already benefited. In addition to the seven giants in the United States, the seven giants in Europe have also performed well recently. The seven European giants involve diverse areas, including consumption, high technology, medical care (such as weight loss drugs), and manufacturing. When the upward trend extends to more sectors and countries, high-quality growth sectors will be more worthy of attention.

Hu Yifan is also optimistic about the UK market. The UK market has high cost performance, is relatively cheap, and has great growth potential in areas such as energy transformation, marine economy, and water resources.

In the Chinese market, in addition to internet platforms, the 'barbell strategy' in recent years has also attracted attention. High-quality state-owned enterprises and defensive sectors (including finance, utilities, telecommunications, and energy) provide attractive yields, usually between 5% and 7%, bringing confidence to investors. In his layout for China, Hu Yifan suggests paying attention to both growth and defensive sectors to achieve a balanced investment strategy.

Regarding commodities, the US dollar may rebound slightly after the Federal Reserve begins to cut interest rates. Gold is still a good tool for hedging geopolitical risks and market fluctuations, and the year-end gold price is expected to reach $2600, and $2700 by mid-next year. Overall, oil and copper prices are relatively stable, while gold and silver still have upward potential.

At the same time, he also pays attention to alternative investments, such as hedge funds, private equity, and private credit, which have more resilience in the market downturn. Properly adding alternative assets can enhance returns and reduce risks.

He concludes, "In the second half of the year, we need to prepare for the downward trend in interest rates, seize the opportunities of artificial intelligence, and prepare for the results of the US elections. Through diversified and balanced investment layout and risk management, we can hope to achieve stable investment returns in the volatile market."

Editor / jayden