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Israel-Hamas war likely to have limited impact on global markets

Amundi Asset Management expects mild US recession in H1, 2024

The impact of the Israel-Hamas war in Gaza is likely to have a temporary on global markets, an asset manager has said.

“Historically, the impact of geopolitics on prices has been gradually declining. In most cases, the effect of a crisis on prices waned in three months. So, we think any upside now would be temporary,” Monica Defend, Head of Amundi Investment Institute, wrote in Global Investment Views, November report.

Amundi Asset Management sees Brent hitting $95 per barrel in the short term, eventually moving to $85-$90 in 2024. For equities, Amundi remains positive on energy and defence sectors, while being negative on airlines.

On the macroeconomic front, Amundi remains slightly less confident about the US than the IMF, which predicted a 1.5 per growth next year. “We expect a recession in H1 next year, taking our 2024 GDP forecasts to 0.3 per cent (real GDP, year on year). The asset manager expects US inflation to flatten around 2.5 per cent compared to the IMF’s outlook of 2.8 per cent.

On equities, Amundi remains optimistic on attractively priced segments in the US, Europe, Japan and emerging markets. “Markets are being driven by changes in narratives relating to rates, a US soft landing or a recession scenario, along with inflation. In this environment, we believe avoiding losers is as important as picking winners because even if a good business is trading at expensive valuations, it offers little protection in times of economic downturn,” Amundi analysts wrote.

While Amundi remains cautious on developed market equities (US, Europe), it upgraded Japan to neutral owing to the ongoing recovery in the services sector and better corporate governance. “In emerging markets, where we are constructive, valuations look fair and earnings revisions seem to be bottoming. The region presents abundant divergences, with strong growth in LatAm, India, Indonesia, among others,” the analysts wrote.

In fixed income, Amundi sees inflation headwinds, but government bonds offering strong value. “Hard data have been coming in above expectations but weakness on soft data (surveys) and the consumer continues. It is a matter of time before this is reflected in select risk asset valuations. However, with US yields at 16-year highs, there is long-term potential in bonds, and in quality credit in developed and emerging markets,” the analysts wrote.

Economic deceleration and ambiguity over monetary policy are collectively increasing complexity across markets, the analysts noted. “This is not a time to take bold risks; instead, investors should stick to their long-term convictions around duration in the US and Europe. In addition, the current uncertainty on US inflation opens the door for some tactical trends around the USD and strengthens the case for enhancing safeguards. At the same time, we now think oil offers additional protection and diversification from the recent increase in geopolitical risks,” analysts wrote.