Quarterly Global Asset Allocation Portfolio Outlook | Q2 2024

The Big Picture – Global Asset Allocation outlook
Key takeaways

Given uncertainty around growth outlook and central bank rate cuts, we spread risk away from outperforming assets towards defensive choices.


We have reduced our allocation to investment grade, high yield, equities, increased cash, bank loans. This is a more conservative approach balanced by maximising commodities. 


Regionally, we still favour European and emerging market assets while boosting the hedge out of USD into yen.

Asset Allocation amid economic uncertainty

The strong performance of many assets over the last four month and our growing concerns about the state of the global economy led us to expect lower returns and spread risks within our Model Asset Allocation.

As a result, we’re reducing our allocation to investment grade (but remain Overweight), high yield (to Underweight) and equities (to further Underweight), while boosting cash (to Overweight) and bank loans (to further Overweight). To balance our conservative approach, we’re maximising our exposure to commodities, which have been underperforming.

There are several questions being asked about the many economic and geopolitical factors in play now or that will feature in coming months: What is the outlook for growth? When will central banks start cutting interest rates and what will happen when they do? What is priced into markets, do bubbles exist and do the outcome of US elections matter for financial markets?

Given all the uncertainty, we’ve decided to spread risk away from outperforming assets towards more defensive choices. Even if economic performance improves, we believe a lot of good news is priced into some assets.

Western central banks will start cutting rates in the coming months, with 100-150 basis points of cuts possible in the next 12 months. We think a lot of this is already priced into the long end of yield curves, though there may be some short-term downside if the US economy weakens in the first half of 2024, as we expect. In this case, we believe that yield curve steepening will largely be the result of falling short rates and we are less attracted to long duration assets than we were four months ago.

Spotlight on central banks

The world is poised to see who will move first when it comes to central banks and cutting interest rates. With economies weakening, central bank interest rate decisions depend upon the path of inflation. Major central banks appear sceptical that core inflation is moving towards their targets, despite consumer price gains rapidly declining since the peaks of mid-late 2022. We think they are being overly cautious since core inflation appears to be on a downward trajectory, due to its cyclical nature.

Figure 1. Market implied path of central bank policy rates (%)

From March 2024 to February 2025. Based on Fed Funds Futures (for the Fed) and Overnight Index Swaps (for the BOE and ECB) as calculated by Bloomberg. Rates calculated for central bank policy meeting dates. For months where there is no meeting, we show the same rate as the month before. As of 13 March 2024. Source: Bloomberg and Invesco Global Market Strategy Office

Assuming that central banks do ease this year, we expect yield curves to steepen with short rates falling more than long rates, The US yield curve often flattens when the US Federal Reserve (Fed) is tightening policy. Once tightening is over and easing begins, there is a tendency for the yield curve to steepen.

Though Figure 1 suggests markets expect as much easing from the European Central Bank (ECB) as from the Fed, we suspect the Fed may be more aggressive as it has more tightening to unwind. This along with the belief that the Bank of Japan may be tightening just as the Fed eases, leads usto believe that the dollar will weaken over the next 12 months.


Asset allocation is the process of dividing an investment portfolio among different asset classes, such as stocks, bonds and cash and so on. Bonds generally tend to be ‘safer’ investments than stocks and are, for example, seen as more defensive. Assets are allocated based on economic and monetary expectations. 

Spreading the risk and number of potential opportunities across various asset classes, such as equities, fixed income and commodities. The aim of diversification is to reduce the overall risk of the portfolio.

Central banks can ‘tighten’ policy by raising interest rates. This is done to curb inflation or an overheating economy. After the pandemic, inflation rose as pent-up demand was released and supply chains issues were cleared. Russia’s invasion of Ukraine further spurred inflation due to higher energy costs. Central banks responded with a series of rate hikes, which is the tool generally used to moderate inflation. 

When an asset is assigned Overweight, an analyst or investor typically thinks that it will outperform others in the market, sector, or model. Underweight is indicative of the opposite. 

Investment risks

  • The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.  

Important information

  • This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. Views and opinions are based on current market conditions and are subject to change.