October 25, 2023

Institutional Views

October 25, 2023

Individual investors are often bombarded with specific stock calls and targets.

However, we believe you can get a better medium to long term perspective by considering asset class, sector, thematic and macro economic views.

To help you, every week, we pour through the research produced by some of the larger institutions, and summarize their market thoughts.

Below are this week’s 6 updates:


Base case forecast for Israel-Hamas war to remain confined to geographical areas under their respective control. Oil hedge preferred for both recession and escalating Middle East conflict. Expect oil prices around USD95/bbl but risk Brent crude potential of USD120/bbl. Gold next most preferred, Jun-24 forecast of USD1,950. US Treasuries less appealing hedge as yield climb suggests growth and technical factors remain determining performance drivers. Base case 10-yr US Treasury yields to decline to 3.5% by Jun-24. High-quality bond yields can rally on both risk aversion and shifting expectations for interest rates. See value in increasing exposure to sectors where performance is less tied to global economic cycle, such as consumer staples.

Citi Bank

OPEC production cuts greater than US producers supply increase and thus US/European energy producers appeal by offering income and potential hedge against shocks and inflation. Corporate profits outlook constructive even if industry analysts are excessively bullish; up 4% next year and +8% in 2025. Quality SMID indexes trade at 30% multiple discounts to S&P500. Depressed small cap valuations may provide attractive entry point, focus on quality small firms left behind by mega-cap surge, whilst avoiding low quality companies found in passive indices. Signs that Chinese authorities will take more material steps to bolster economy.


Japan’s recovery will continue towards 2025, albeit with temporary and shallow contraction in Q4.23 and Q1.24. Revision to China 2023 GDP forecast to 5.1% from 4.8%, and maintain 2024 GDP forecast at 3.9%. However, economy has not yet bottomed out with drags from property and service sectors. Asia base case assumes export downturn is bottoming out, and will improve in Q4, reflecting an improved tech cycle. Recent US data suggests economic momentum remains firm, raising the risk of a soft landing. UK rate cuts revised to Q3.24 from Q4.24.


US recession remains base case. Average lag from first Fed hike to onset recession equates to 27 months, Jun-24 therefore is historical norm given hiking cycle start in Mar-22. Although, US economy less rate sensitive than in past, some consensus economic resilience attribution is in reality lag underestimation. Q3 GDP growth remains uncertain with three nowcasting trackers predicting 4.9%, 2.1% and 1.6%.


2023 Global GDP growth upgraded to 2.5%. US to avoid recession with rate cuts from Q3.24. ECB to begin cuts from Q4.24. Real yields at current level are now unsustainable and provide appealing entry point. Above typical duration exposure as US treasuries less inverted and investment grade bonds upward sloping. Extend duration exposure for DM govt. bonds to 7-10 yr maturities and maintain medium duration for investment grade corporate bonds. Bullish USD as elevated US yields are supportive and project stickier strength. Overweight equity sectors; Consumer, Industrials, Healthcare and Energy. China growth to slip below 5% next year, but project ASEAN strengthening. Fastest cut pace in Latin America given high real rate level. Entered supply-side driven era of high inflation volatility, illustrated in India from recent spikes in oil and food prices. Hedge funds appeal given uncertainty and volatile macroeconomic data. NZD to outperform AUD over short term.

Morgan Stanley

Odds of Q4 rally fallen considerably given narrowing breadth, cautious factor leadership, falling earnings revisions and fading consumer confidence. Earnings expectations likely too high for Q4 and 2024. S&P500 3900 target price for year-end remains, with 2024 earnings per share forecast of approximately $230. Oil prices to rise because of Israel-Palestine tensions but resist assumption this alone will lead to higher rates. 10% jump in previous supply shocks added 0.35% to headline US CPI for 3 months, but just 0.03% to core CPI. Expect PCE inflation below 3% in Q1 2024. Fed Vice Chair Jefferson suggested that the recent bond yield move could forestall another hike.Although inflation is largely under control in Asian economies, central banks could be pushed to respond if high US yields meet rising oil prices.

* Please note these are not the thoughts or analysis of illio but the respective institutions. We have summarized what we believe are key points. We assumes no responsibility or liability for any errors or omissions in the content of this site. The information contained herein is not intended to be a source of advice and the information contained in this website does not constitute investment advice.


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