Closing post
Time to wrap up.
The Bank of England should be able to cut interest rates “fairly soon”, argues Franklin Templeton’s head of sustainability and European fixed income, David Zahn.
Zahn told Reuters:
The UK economy has continued to disappoint, inflation is coming down quickly and the economy is more responsive to rate hikes, and rate cuts, than Europe or the U.S.”
“Therefore the central bank should be able to cut rates fairly soon, I wouldn’t be shocked if they cut in the next 2-3 months.”
One of the Bank’s hawkish policymakers, Jonathan Haskel, has revealed that his vote to raise interest rates was “finely balanced” (he was outvoted).
Haskel wants more proof that inflation pressures are easing, saying:
“The signs that we’ve seen thus far are encouraging. I don’t think we’ve seen quite enough signs yet.
City traders now expect just three rate cuts in 2024, half as many as back in December.
In the financial markets, Japan’s Nikkei hit a 34-year peak…
..while the US S&P 500 has hit a new alltime high….
..and cocoa prices are at a record high, which will push up chocolate prices.
Saturday is Chinese New Year, and investors will be hoping that the Dragon brings them more luck than the Rabbit.
China’s Shanghai Composite Index finished the Year of the Rabbit with a 12% loss, as shares were hit by worries over China’s economic slowdown, and the crisis in its property sector.
Hong Kong’s Hang Seng index had a worse year, losing almost 29% during the Year of the Rabbit.
Chinese equities underperformed global stock markets in 2023, so shareholders will be hoping for a better 2024 – especially if Beijing rolls out new stimulus measures to help the economy.
Dzmitry Lipski, head of funds research at interactive investor, says:
While there are short-term challenges such as property and geopolitical risk – the threat of conflict with Taiwan is a concern right now - improving fundamentals, strong consumer and technological advancements will be key drivers of the market.
“And as China is increasingly recognised as being a major driver of global growth, investors should consider having exposure to China when building a balanced portfolio. China currently represents nearly 18% of world GDP but less than 3% of world market capitalization, having previously comprised over 5% in late 2020.
“The broad derating of Chinese companies over the past two years means that valuations look attractive, both when compared to historic averages and versus other world indices. Valuations are supported by strong MSIC China consensus earnings estimates of more than 14%.
“For these reasons, the recovery in Chinese equities should continue considering depressed/compelling valuations versus history and other developed markets combined with institutional holdings the lowest in five years, the risk/reward ratio for Chinese equities is favourable.
Updated
