As 2023 came to an end, there was growing evidence of a softening in inflation, although there remained some uncertainty regarding the forward looking pathway for monetary policy. The recent pauses from Central Banks has led to a growing consensus among investors that the cycle of interest rate hikes is at an end, even though inflation remains above target levels. This view reflects the fact that, despite one of the most aggressive and rapid hiking cycles in history, the global economy has held up well so far.
After two years of declines, 2023 proved to be another tough year for bond investors. A high degree of volatility across positive and negative territory following the tightened monetary policy backdrop from central banks has contributed to the continuation. The global bond index ended 2023 up for the first time in three years after a rebound in November and December. We believe that the change in valuations that has taken place has created an opportunity for investors in government bonds.
Most equity markets ended the year in positive territory on the prospect of ‘peak interest rates’. Current valuations are viewed as neither cheap nor expensive as we start 2024, with a focus on higher quality stocks. The US continues to trade at a premium to others primarily driven by the gains from mega cap companies this year.