This note contains an overview of our market views, what we are watching, and our portfolio strategy. Any reference to portfolio positioning relates to our flagship discretionary portfolios. Clients with bespoke or advisory portfolios should consult their Client Advisor for the latest update on your portfolio.
Tensions in Syria not a source of concern for markets
After around 14 years of civil war, the fall of Bashar al-Assad’s regime in Syria has caught the world by surprise. Initial market reactions have been muted. Oil prices have risen by around USD1/bbl, while other markets (global equities and currencies) haven’t budged, suggesting the unfolding of events in Syria is not causing any worries in financial markets. We think it unlikely that what’s happening in Syria could spiral into broader uncertainty or have an impact across the Middle Eastern region in the short term. However, the longer term impacts remain unclear at this stage.
A key theme of our year-ahead outlook is geopolitical fragmentation
One of our central themes for 2025 and beyond continues to be a more ‘fragmented world’ along geopolitical lines. We run a multi-asset and globally diversified allocation that helps us cushion bouts of volatility and capture return across regions. This allocation aims to mitigate the impact of local events by gaining exposure to asset classes that are driven by different factors. We’re going into next year with a slight US equity overweight. Along with other diversifiers such as government bonds, we hold a broad commodity and gold exposure that tends to benefit from geopolitical uncertainty, and we still maintain an insurance instrument (where client knowledge and experience, and investment guidelines and regulations, permit), which tends to appreciate when European equities fall, partially mitigating the effect of market selloffs. See our 2025 Counterpoint Investment Outlook here.
What we’re watching this week: central banks
In the US, markets expect inflation to have stabilised in November (Wednesday), with the risk of a slight uptick. Although the job market recovered strongly in November after a weak October, we think the inflation print should allow the US Federal Reserve (Fed) to cut interest rates at its meeting on 18 December. Before that, the European Central Bank (ECB) will likely cut interest rates this week (Thursday), bringing the deposit facility rate to 3%, down from 3.25% currently. Eurozone inflation has hovered steadily around the 2% target for some time, while economic growth has lost steam. We think the ECB will likely continue to extend its interest rate cuts into 2025. We own more European government bonds compared to our long-term allocation, with a preference for short-dated ones, as we expect them to benefit from ECB rate cuts and weaker growth. The Swiss National Bank is likely to cut rates as well, also on Thursday.
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Information correct as of 9 December 2024.
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