Inflation concerns have abated across Europe, Natixis Investment Managers has suggested, with the problem now greatest across Africa and the Middle East.
The group’s 2024 Institutional Outlook Survey found institutional investors still harboured significant concerns heading into the new year, with three-fifths (59%) of respondents predicting equity markets would see higher volatility and two-fifths (39%) saying the same for bonds.
“Overall, market projections for 2024 show institutional investors are bullish on just three asset classes,” the report’s authors wrote. “With interest rate hikes appearing to have levelled off, almost seven in ten (69%) institutional investors – and 74% of those in EMEA – are bullish on prospects for the bond market in 2024. Private assets continue to hold their lustre for institutions as 64% are bullish on private equity. The lustre also shines on private debt, where 60% are bullish.”
The view on equities was less clear, however, with the report adding. “Just over half (54%) are bearish on the prospects for stocks in 2024, but that still leaves 46% who are bullish. As it stands now, 72% are concerned that valuations do not reflect company fundamentals. But 80% of those surveyed – and 91% in North America – believe that 2024 is a year in which markets will recognise that valuations matter.”
The largest portfolio risk, believed respondents to the survey, was interest rates, which was identified by 62%. This was followed by inflation (61%); market volatility (45%); valuations (34%); and liquidity (25%).
‘Muting effect’
The report also flagged the potential ‘muting effect’ a strong dollar could have on emerging market performance, explaining: ““Even though the dollar appears to have plateaued, local currencies have yet to reach equilibrium against the greenback; as a result, 65% of institutions believe emerging markets are at the mercy of US monetary policy. The outcome for 2024 is unclear as institutions surveyed are split as to whether the US dollar weakens (54%) or strengthens even more (46%).”
Natixis identified a rise in investors looking towards “their own backyards”, with 41% in North America aiming to up allocations to US equities and 57% in Asia looking to add to APAC stocks. “Almost four in 10 in Europe (39%) will add to European stocks and half of those in Latin America will add to stocks from their region. The report was collated from the responses of 500 institutional investors from 27 countries around the world.
