Invesco: The current environment supports diversified investment strategies to welcome the potential global growth recovery next year

According to the Zhitong Finance APP, Zhao Yaoting, a global market strategist for Invesco in the Asia-Pacific region, expressed his views on the investment outlook for the fourth quarter, stating that market performance has been stable, and the impact of ongoing policy uncertainty in the United States and unresolved geopolitical tensions seems relatively light. Although the momentum of the U.S. economy has weakened, the overall macro environment remains robust, and the risk of a significant economic recession is very limited.

He noted that the Federal Reserve cut interest rates for the first time this year at the September Federal Open Market Committee (FOMC) meeting. The latest dot plot indicates that the market expects three rate cuts this year. Price pressures related to tariffs are expected to push inflation higher in the short term, but these pressures are only temporary. Overall, the current environment supports a diversified investment strategy while allowing for moderate market risk to prepare for potential global growth recovery next year.

Preference for corporate investment-grade bonds, optimistic about the UK and emerging markets

In fixed income, the yield curve may continue to steepen, as the Fed's rate cuts lead to lower short-term rates, but concerns about the U.S. budget deficit and Fed governance may keep long-term rates within a range. Short-term assets still have a relative yield advantage, while long-term yields are lower than historical levels.

In credit, the spreads of investment-grade and high-yield bonds remain at historical lows. Although the fundamentals are solid and corporate earnings are robust, a selective strategy is still needed in the current environment. Invesco prefers corporate investment-grade bonds, as their risk-return characteristics are similar to government bonds, while the spreads of corporate high-yield bonds have further narrowed. Among investment-grade bonds, they are optimistic about the UK and emerging markets due to their overall more attractive yields, while maintaining a neutral stance on the U.S. and the EU.

Cyclical sectors in U.S. stocks may continue to outperform, while European stocks may need corporate earnings recovery to sustain upward momentum

In terms of equities, U.S. stock valuations are relatively high, but the earnings growth of the technology sector remains robust. Benefiting from rate cut expectations, cyclical sectors may continue to outperform. As the yield curve steepens and profit margins are expected to improve, bank stocks may benefit.

European stocks have outperformed the U.S. this year, primarily driven by a revaluation of multiples. For European stocks to sustain their upward momentum, a recovery in corporate earnings may be needed, which could benefit from upcoming large-scale infrastructure and defense spending plans that provide fiscal stimulus. The UK stock market is more attractive in terms of valuation, with its industry structure combining high-yield defensive sectors and economically sensitive cyclical sectors.

Valuations in mainland China and Hong Kong stock markets remain attractive, and anti-involution policies are expected to support corporate earnings growth

The mainland China and Hong Kong stock markets have performed strongly recently. The low interest rate environment in mainland China has prompted local investors to turn to the stock market, especially those companies listed offshore in Hong Kong.

Compared to other global stock markets, the valuations in mainland China and Hong Kong remain attractive, and the "anti-involution" policies are expected to support corporate profit margins and earnings growth by curbing excessive competition