The great financial experiment’s second act yields opportunity

What’s perhaps the greatest financial experiment ever is entering its second act, with implications for investors. After more than a decade of near-zero interest rates and quantitative easing following the 2008-2009 global financial crisis, US and European central banks are in the midst of withdrawing surplus liquidity without crashing their economies.

As inflation cools, central banks have paused their cycle of raising policy rates ahead of likely cuts later in 2024. That brings to an end two years of tightening conditions led by the US Federal Reserve. Starting in March 2022, the Fed raised rates 11 times to 5.25-5.5%, the highest level in 22 years.

The result of this period of monetary tightening for investment portfolios is profound. Bonds offer attractive yields for the first time in many years, as well as the possibility of capital gains. Once again, they can be used for their traditional purpose of diversifying the risk in portfolios and earning a return.

“A lot of investors have yet to use this opportunity to reassess their asset allocation and consider whether they can make the same return they have in other investments over the last few years but with significantly lower risk,” explains Henrik Drusebjerg, Head of Nordic Investment Strategy at Quintet Private Bank. “You should always regularly check your asset allocation but now it may be more important than for some time.”

Henrik Drusebjerg

Henrik Drusebjerg
Head of Nordic Investment Strategy

Bonds are back

In Quintet Private Bank’s investment outlook for 2024, entitled Cutting Through The Noise, we describe how economies are likely to progress and how investors should prepare. We anticipate a moderate global economic slowdown, with a shallow recession in parts of Europe. Yet growth will be resilient in the US, where there is full employment and unprecedented corporate profits. Meanwhile, China is a story in itself. While the economy is still growing, it’s hampered by an ageing population resulting from the one child policy, and a debt-swamped real estate sector that’s harming consumer confidence.

In this fragmented world – with the possibility of deeper recessions than we currently anticipate, and ongoing geopolitical risks – the need for portfolio diversification is our key investment message in 2024. Within that context, we think high-quality bonds are attractive due to their more attractive yields, compelling valuations and protection against recessionary risks. Within bonds we favour US Treasuries and other government bonds over riskier, higher yielding bonds.

Asset allocation is always important but the complexities of today’s multi-polar world at an inflection point in policy rates make it even more so. Quintet Private Bank – which is opening an office in Stockholm to be close to our Swedish clients – has short decision paths so that adjustments in asset allocation and other investment and wealth planning matters, can be made quickly, with flexibility.

Cutting through the noise

Counterpoint Outlook 2024

When thinking about an investment strategy, it’s important to consider its time horizon. It’s human nature to notice short-term ups and downs more than long-term, gradual trends. But we, as investors, must take both into account when building our strategy. This is especially true when the news is dominated by geopolitical tensions, elections and significant government actions – as will likely be the case in 2024.

Accessing the best markets can offer

“We pride ourselves on being small enough to be personal but big enough to be able to give you easy access to the best that the world of financial markets has to offer,” says Johan Karlsson, Team Leader Sweden at Quintet Private Bank.

As such, Quintet is a wealth manager for people like entrepreneurs who see the world differently: individuals who seek out original, perceptive insights. Our bank has 50 offices across Europe, with a head office in Luxembourg and a history of working with Europe’s wealthy families for 75 years. The expansion into Sweden is part of our planned Nordic strategy, following the opening of an office in Denmark in 2020.

Quintet is designed to simplify the investment landscape in complex markets such as today’s. As our Head of Nordic Investment Strategy, Henrik, notes: “We are now moving into the second part of the biggest financial experiment in world history. Central banks are trying to remove some financial liquidity and still have a functioning world economy. Things are going as they’re supposed to but there’s a risk of unintended negative consequences. Navigating today’s fractured world as this experiment evolves will be key to investment success in 2024.”

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