Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
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SaxoWealthCare Quarterly Commentary Asian Growth 2024Q2
Market Rewind
Saxo
Summary: After each quarter you can download your personal quarterly report into your SaxoWealthCare account. In this article we would like to further explain what has happened in the market and how we have responded to this within your profile and portfolio.
Market Review
In the second quarter of 2024, the stock market hit new highs, while bonds stayed mostly the same. Both stocks and bonds were expected to benefit from future interest rate cuts, but doubts arose as concerns about inflation came back and fewer rate cuts were expected. The US was now expected to cut rates only once in 2024, instead of three times as previously thought.
The stock market has been doing well for a long time, mainly because of a few top-performing tech stocks. These seven big US tech companies (Microsoft, Amazon, Meta, Apple, Alphabet, Nvidia, and Tesla) did especially well, gaining 17% in Q2. This helped the S&P 500 index rise by 4.3%. European stocks also did well but not as much as US stocks. Risky investments like credit bonds and emerging market stocks also performed well. Government bonds stayed flat but still offer a good return with decent yields.
In May, US inflation was lower than the previous month, and the European Central Bank (ECB) cut rates once. Business confidence in the service and manufacturing sectors suggests slower growth but not a recession. Higher rates haven't yet reduced consumer demand for mortgages and loans, which is good for the economy but bad for inflation and rate cuts. Unemployment remains low. There is a risk that consumers may struggle with rising prices and higher rates.
So far this year, stocks have done well and have outperformed corporate bonds, which did better than government bonds that had small negative returns.
Portfolio Performance
Fixed Mix Strategies
| 10Y Annualised Return | 10Y Annualised Volatility | Since Inception | Year to Date | Quarter to Date |
Very Dynamic | 5.78% | 14.00% | 5.81% | 13.37% | 8.38% |
Dynamic | 5.40% | 11.06% | 5.39% | 11.24% | 6.83% |
Moderate | 4.92% | 8.23% | 4.72% | 9.12% | 5.28% |
Defensive | 4.35% | 5.70% | 3.82% | 7.00% | 3.76% |
Very Defensive | 3.68% | 4.04% | 2.68% | 4.89% | 2.24% |
Source: Data from Bloomberg, Morningstar, BlackRock, Amundi, from 06/30/2014 to 06/28/2024. Inception date of the strategy is 5/31/2022. Returns are shown in SGD and gross of costs such as management fee and transaction costs but net of ETF costs (TER). Returns are calculated with a monthly rebalance to target allocation. Returns before the launch of the strategy with Saxo are calculated based on the portfolio allocation at the launch date. These historical returns do not attempt to simulate investment decisions that could have been made before the first portfolio was implemented with Saxo. The returns presented are indicative of the returns of individual investors, which may differ slightly.
Asian equities surged in the second quarter, while global bonds with an Asian bias saw a more modest increase. Both the equities and bonds components of our portfolios performed similarly to the markets.
In the first half of 2024, investors who took more risks saw their assets grow significantly, with returns of +13.4% while conservative investors saw their portfolios grow more modestly.
Portfolio Protector and Goal-Based Strategies
Investors who have opted for Portfolio Protector or Goal-Based strategies have their own unique asset allocation that depends on their individual preferences and constraints. Still, the mix of assets in their portfolios will fall somewhere on the spectrum of the Fixed Mix portfolios since they are composed of the same building blocks for equity and bonds. Hence, we believe the information presented in this report should bring them some light to interpret the performance of their portfolios accordingly.
Portfolio Changes
Equity
The equity portfolio was rebalanced two times by BlackRock in the second quarter of 2024.
This portfolio gives investors exposure to Asian equities. It aims to outperform Asian stock markets via dynamic tactical adjustments to the mix of ETFs in the portfolio. These adjustments are done via one investment model: country rotation. Country rotation is implemented through ETFs that track the general market of various countries.
Late May
Among East Asian countries, there is a preference for China, as support is expected for reforms in the property sector and policies that favor investors. As such, the allocation to China was increased to an overweight versus the benchmark. The portfolio remains slightly overweight in South Korea, but it moves to an underweight position in Taiwan to lock in some gains after the strong rally driven by the tech sector. India remains still the second largest allocation and the overweight position is maintained, supported by positive momentum and potential upside from a BJP victory in the ongoing general elections. The allocations to the other Asian countries are kept in line with the benchmark, in the absence of a strong view regarding these countries.
Late June
In this rebalance the position that was reduced most is India, and your capital is redeployed mainly into exposures to Taiwan and South Korea. With the elections now behind us, the valuation premium is expected to flatten in India, while the AI theme could continue to play strongly for Taiwan and South Korea. Moreover, some support is expected from property sector reforms for growth in China.
Bonds
No changes were made to the bond portfolio in the second quarter of 2024.
This is a yield-seeking bond portfolio. It is composed of global government and corporate bonds with a medium duration, but it also has a special focus on Asian investment grade corporate bonds. The foreign currency exposure is mostly hedged to USD in this portfolio. It is designed to invest for more stable returns than equities and to act as a diversifier to equities during negative periods, with a focus on the Asian region.
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