(Bloomberg) — This year is already shaping up to be a tough one for investors to navigate, with heightened debate over central bank moves, prospects for economic slowdowns and crucial elections around the world all weighing on fund managers’ minds.
Against this backdrop, Bloomberg News asked executives at major investment firms with almost $2 trillion in combined assets under management about where they plan to put their money in 2024.
From outsourced pharmaceutical service providers to longer-duration US Treasury bonds and private credit deals, chief investment officers from Singapore to Switzerland are looking for long-term growth and betting the slowing economy has finally pushed asset prices down to create a buyer’s market.
GIC: $770 billion in estimated assets under management
GIC Pte CIO Jeffrey Jaensubhakij sees a year of heightened risks from “higher for longer” interest rates eating into corporate finances to geopolitical problems and even artificial intelligence forcing companies to make expensive adjustments. That means more opportunities to become a reliable lender for businesses needing capital.
Read more: A Pessimist’s Guide to Global Economic Risks in 2024
“Higher interest rates and tight credit availability make new deployment in private credit an area of focus,” he said, adding that inflation hedging through real assets remained important. “In real estate, fundamentals remain resilient in logistics, student accommodation and hospitality.”
And with climate change risk continuing to rise, the Singaporean sovereign wealth fund is looking at investments that help with the energy transition.
Pictet: 250 billion Swiss francs ($288 billion)
For Pictet Wealth Management CIO and head of investments César Pérez Ruiz, energy independence and the push to combat climate change is a key theme for deals. But that doesn’t equate to obvious sectors like solar panels or electric vehicles.
“I want to buy the beneficiaries — the companies that are going to do the digitalization, the companies that are going to do the infrastructure investments,” he said, citing Schneider Electric SE as an example. “There are going to be industrial companies that I call ‘the new staples’.”
Read More: This $20 Trillion Climate Theme Is Trouncing Other Strategies
With China’s property, consumption and technology firms all experiencing continued volatility, Ruiz remains cautious about the outlook there, finding many similarities with the Spanish housing crisis more than a decade ago that continues to have an effect today.
“I prefer the rest of the world first,” he said, adding that Europe and Japan were attractive markets for investments, especially entertainment, consumption, robotics and digital services companies that service the domestic market in the latter.
“If there is recession, small caps will outperform big caps because everyone is hiding in big caps,” he said.
Partners Group: $147 billion
Unlike many of his peers, Partners Group Holding AG CIO Stephan Schäli still sees bright spots in China, especially in areas like pharmaceutical companies where valuations that exploded at the peak of the Covid-19 pandemic have started to become more affordable as they hunt for growth capital.
“We’re global investors so we don’t exclude China,” he said. The outsourcing of pharmaceutical services from drug development to manufacturing and packaging firms gives opportunities, both in China and other Western markets, he added.
While Schäli is relatively cautious on office properties, he echoes GIC’s penchant for last-mile logistics assets as well as Pictet’s enthusiasm for companies that will benefit from the rise of AI and environmental concerns.
“The IT service sector is changing so companies able to implement AI and help other companies get that done are an attractive topic,” he said. Companies that provide ESG-related services are also a target. “We invested in the global leader of cleaning pipelines. So that’s making them really clean and making sure they don’t have any negative environmental impacts.”
China Asset Management: 1.89 Trillion Yuan ($263 billion)
China’s market may have more upside surprises than downside in 2024 even as the nation’s economic slowdown and property crisis weigh on investor confidence, according to Richard Pan, CIO of global capital investment at Beijing-based China Asset Management Co.
Catalysts for a turnaround include bigger-than-expected interest-rate cuts in China as the Federal Reserve’s anticipated end of its hiking cycle may give more room for China’s policymakers, and even stronger support for the ailing property market such as the removal of home-purchase curbs in top-tier cities.
“What we’re lacking is just confidence,” Pan said, citing China’s faster economic growth when compared to the US. Once the slide in real estate is arrested, “confidence will most likely return.”
Chinese companies have become more competitive since the start of the pandemic and will continue to do so, he said. While the rise of electric vehicle-makers and solar panel producers was well-known, he argued that restrictions on advanced chips have helped the nation’s semiconductor makers gain an even bigger market share.
Read more: China Secretly Transforms Huawei Into Powerful Chip War Weapon
For evidence, Pan pointed to electricity generation data in the first half of last year that he said showed China’s economic recovery had been more driven by advanced manufacturing when compared with the US. And the Chinese economy’s size allows it to afford huge investments needed to develop key technologies like new energy and AI, according to Pan.
“Such factors have been seriously neglected by the market,” he said, predicting that the medical, healthcare and e-commerce sectors will see a recovery in valuations.
Temasek: S$382 billion ($285 billion)
For Singaporean state-owned investor Temasek Holdings Pte, the prospect of rate cuts by the Fed makes it “constructive” on the US market, CIO Rohit Sipahimalani said. The easing of financial conditions will reduce recession risks, he added.
“Valuations make it unlikely that we will see outsized gains at the index level, although there are attractive opportunities in certain segments,” Sipahimalani said. He likes India despite valuations that are “a bit extended,” and is attracted by Japan, thanks in part to Tokyo Stock Exchange reforms.
In private markets, Sipahimalani sees a reassessment of valuations coming to the fore.
“Some private equity players who need to give liquidity back to their LPs are now being pressured to sell at more realistic prices,” he said. “And companies who raised a lot of money in 2021 are now getting to the using of that money. They need to come back to raise that money and will have to do so at more realistic valuations.”
Demand for capital may be slowed by the flood of private credit hitting the market, he said, noting Temasek itself plays in the space, especially when it offers “equity-like” returns as it does today.
“But you ultimately hit a wall when you need capital,” he said. “People can take debt up to a point, but they need to complement it with equity.”
Rest Super: A$80 billion ($53 billion)
Australian pension fund Rest Super still sees the appeal of property and infrastructure, but adds that private markets “haven’t yet priced to the new horizon” of structurally higher inflation, according to CIO Andrew Lill.
While Rest Super has been “moderately increasing” its exposure to private credit over the past 18 months and will continue to do so over 2024, it’s also been paying attention to a stalwart of institutional portfolios: bonds.
The fund has been lengthening the duration of its bond portfolio. “And when US 10 years hit 5% in October, that was the signal to complete our rate-lengthening exercise,” Lill said. “That was the level in yields at which fixed interest became a better defensive asset than you’ve seen for quite some time in your portfolio.”
He said the fund had been reducing high-yield exposures because at current spreads above the sovereign rates, the risk versus reward was becoming less appealing.
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