AXA IM: Assessing risk and returns for 2024

November 15, 2023

Given the current economic and geopolitical backdrop, equity risk is underpriced, and rate risk is overpriced, according to Chris Iggo, CIO of AXA Investment Managers. 'This is an interesting consideration as 2024 investment decisions loom', Iggo says in his latest CIO Viewpoint.

The performance of big indices such as the FTSE All-Share Index, the MSCI World Index and the Dow Jones Industrial Average over the past 60 years indicate that 7% to 8% is a standard expectation for long-term equity returns. Looking forward, should such returns be reasonably expected for the next few years? Perhaps, but Iggo has two main doubts around the equity outperformance for the next 12 months:

• Macroeconomic expectations of softer growth, lower inflation, and modest interest rate cuts
• Risk premium has moved in favour of bonds

Quantitative easing made bonds so unattractive that investment capital went into equities or credit, but given the higher interest rates that game is over, Iggo states. He doesn’t rule out that equities will deliver again in 2024, but it all depends on the macroeconomic outlook. Currently, a soft landing is foreseen whereby the interest rates will remain ‘higher for longer’. According to Iggo, this will limit the extent to which bond yields can fall in the short term, raising the likelihood of higher real returns for fixed income investors.