Björn Jesch, global chief investment officer at German asset manager DWS, shares his insights on investment opportunities in 2024.

Björn Jesch at DWS believes that the outlook for international equity markets is relatively positive, amidst high geopolitical risks.

"We have raised our price targets for most of the equity markets since we expect corporate profits to rise by 5 to 10 per cent in the 12 months to come," Jesch (pictured) said in a note.

“Whether the situation in 12 months’ time will be in line with our forecast, will largely depend on US developments,” he added. "Our base scenario is a soft landing of the US economy, gradually gearing up again afterwards," he continued. However, Jesch believes that there are three prerequisites for this positive outlook to materialise. “First, consumer sentiment must improve after the US presidential election. Second, the rate-cutting cycle of the US Federal Reserve must not fuel inflationary fears. Third, corporations which are currently investing huge amounts in artificial intelligence, must not suffer any major setbacks but rather gradually establish high-margin business models,” he said. “Probably the biggest – and at the same time the hardest to forecast – risk factors are geopolitical factors, particularly the highly explosive situation in the Middle East.” 

Despite the massive stimulus measures recently announced by the Chinese government, which boosted prices on the local stock exchanges, Jesch is sceptical that they will have a permanent positive effect on global stock markets. “China continues to be hampered by the real-estate crisis and weak domestic demand, exporting its over-production to Europe and the US,” he said.

John Woods, chief investment officer, Asia, and senior macro strategist, Homin Lee at Swiss private bank Lombard Odier also believe that far more will be needed to change their cautious assessment of China’s medium- to long-term economic trajectory. See more commentary here.

“Notwithstanding the generally positive perspectives, equity investment is currently rather tricky,” Jesch continued. In many cases, valuations in growth investing continue to be vastly stretched. Value stocks are currently hurt by poor economic growth. "I think that a combination of both investment styles is currently the best solution for a globally diversified portfolio," he said.

Although inflation is falling, the conflict in the Middle East could drive energy prices up. “The inflation rate has decreased further in the US. But the development of energy prices remains a factor of uncertainty, particularly against the background of the unstable situation in the Middle East,” Jesch said.

Jesch also emphasised how the central banks in the US, the eurozone and China have turned towards an interest rate-cutting path which should help to fuel demand.

After its most recent rate cut by 50 basis points, he expects the Fed to take five further rate-cutting steps of 25 basis points each by September 2025 in order to stimulate economic recovery.

Equity view
After the recent US tech setback, Jesch believes that the health sector is currently more promising than tech stocks. Even if the big US tech stocks can meet expectations and deliver strong profit gains, Jesch believes that there is a rather low probability that they will return to their record highs in the short-term. He currently favours the health sector which shows growth and appropriate valuations.

Jesch also thinks that Japanese equities are performing well, but the exchange rate is an uncertain factor. “Japanese corporations continue to disentangle, shifting their focus from the traditional stockpiling of cash towards buybacks. This should have a positive impact on the stock market,” Jesch said. However, he has not yet upgraded the Japanese stock market since he wants to wait and see how the dwindling yield spread between the US and Japan impacts the Japanese yen.

Alternatives view – gold
Despite the excellent performance in the current year, Jesch believes that there is still some upside potential left in gold. He highlighted how gold has shown an excellent performance of 23 per cent in the current year to investors. “The basic conditions for the precious metal are expected to remain intact for the time being. Rate cuts in the US, rising geopolitical unrest and the high demand of retail investors from Asia and central banks are meant to support prices further,” Jesch added.

He is not alone in his views. Arnout van Rijn, portfolio manager with the multi-asset team at Robeco, a Rotterdam-headquartered asset manager, has recently increased his exposure to gold through the purchase of exchange-traded commodity (ETC) derivatives and by holding the equities of gold miners. Mark Haefele, chief investment officer at UBS Global Wealth Management also continues to like oil and gold as effective portfolio hedges amid market uncertainties. See more commentary here.