ABU DHABI, 21st June, 2023 (WAM) – First Abu Dhabi Bank (FAB) is forecasting current high interest to likely continue into 2024.
FAB analysts made the prediction during a forum to update Global Private Banking clients on the bank’s Global Investment Outlook (GIO) for the remainder of 2023 and into 2024. The event provided a snapshot of the current global economic and investment environment as an update to FAB’s GIO report, which is published annually in January. Insights included key macro-economic trends with analysis on the forces that will shape investment decision making.
Alain Marckus, MD and Head of Asset Management, FAB Global Private Banking Group, said: “FAB expects higher interest rates to be around for longer, with the first cuts to take place later in Q1 2024 at the earliest. Sharply higher interest rates put in place by the global central banks, and increasing over the last 12 to 15 months, have been in force as the world experiences above-trend inflation post the covid pandemic. Much has been put down to geopolitical risks around the world while the employment data in America remains strong. This has given central banks ‘carte blanche’ to keep the pressure on to curtail price pressures through inflation, that are damaging to the economy if not tackled through these policies.”

For investors, inflation and high interest rates have placed financial markets under pressure since the beginning of 2022. Continued volatility has seen many investors challenge traditional asset classes – including the so called 60:40 split between bonds and equities – and concerns that US 10 year treasuries, recently delivering lower yields than short-term ones, suggest that a hard landing may be around the corner for the United States.

The current landscape has many investors reassessing the merits of alternative asset classes versus traditional asset classes, highlighting that alternative assets such as private markets, and better-value stock markets such as the Japanese stock market, have recently given investors uncorrelated returns. FAB expects that this trend will continue in the near-term. Additionally, FAB points to new opportunities in the bond markets in fixed income, as longer-term yields for bonds around the world with higher interest rates begin to look attractive for income investors.

Marckus added: “While the global economy is showing signs of improvement, investors must be wary. It can be hard to foresee exactly what’s around the corner, and we believe an asset allocation make-up for the typical investor of moderate risk should remain heavily tilted to deposits and higher-yielding shorter-term bonds with good income. At the same time, alternatives and some of the non-dollar exposure that looks attractive can still be found in MENA and Japan, where economic fundamentals remain conducive. Alternatives for qualified investors targeting moderate to aggressive growth, and for longer term strategies, should also be considered.”