House View – March, 2024

In focus: It’s time for interest rate cut!

Global outlook

Although “soft landing” remains the most likely economic scenario (when economy is slowed down to reduce inflation, without tailspinning), there is also an increasing chance of a “no landing” scenario (that is, above average inflation with above average growth rates in the longer term). The US economy grew faster than expected (3.3% vs. the expected 2%) thanks to a solid labour market and strong consumer spending, while the pace of consumer price increase grew slightly (3.2% vs. the forecast 2%), mainly due to higher fuel prices. A serious dilemma is what the central bank should do: keep interest rates high and inflation under control, or lower the benchmark rates and boost the economy with cheap loans. For the time being, investors think the latter is more likely: the rate of price increase has only slightly grown (+0.1% compared to January), and the Fed’s powerful chairman Jerome Powell has said he is “not far away” from having the confidence to cut interest rates, which also supports equity markets. Inflation above expectations and a tight labour market are also common in the EU.

US Federal Reserve base rate

US Federal Reserve base rate



Equity market news

The stock market rally around artificial intelligence is unstoppable in the world’s largest equity market. The global market leader in the field, the California-based Nvidia, which also produces AI hardware and software, is now the straw that stirs the cocktail: the company’s better-than-expected results of last year (revenue up by 126%, $60.9 billion) increased the share price by 15% the day after the announcement. That’s an increase of $250 billion in just a few hours – a “half Tesla”, 80% of Oracle and 20% more than Intel’s total stock market value. Nvidia’s stock market value is already $2,300 billion, its shares are up 90% (!) in the first two and a half months of this year alone.

Solid economic data and the already mentioned upcoming interest rate cuts could give equity markets a new boost. In addition to the New York stock exchange, the Tokyo and European stock markets have also risen to historic highs; it is time to realise some of the profits, and a more serious correction may be imminent. On the other hand, emerging equity markets, especially those in Central European that are considered cheap, can be good investment targets, for example, the market-friendly Polish democratic turnaround can attract many foreign investors, and consumption by Ukrainian refugees also increases the GDP.

Bond market news

The value of emerging market bonds may significantly rise due to a decrease in the risk premium. It is clear that favourable economic trends have made investors more courageous, and they are looking for more risky opportunities all over the world that promise higher returns. The expected yield spread is decreasing, which in turn is boosting the value of emerging market government bonds promising higher yields. A 10-year German government bond pays 2.3% per year, while a similar Romanian euro bond pays 5.3%. It would be no wonder if there was a rush for them – and high demand is pushing up their prices. And, of course, it reduces yields: a single percentage point drop on a 10-year bond means a 7-8% gain in exchange rate.

Alternative investments

The commodity market has gained momentum. The Reuters commodity index has shown a slow but steady rise in overall prices since last December. The market environment is particularly good for gold, which is also evident from the fact that despite high dollar yields, the per ounce price of precious metal that does not pay interest has risen to a historical record. Inflation worldwide is likely to remain higher than previously thought, US government debt remains huge and stagflation may hit the world. All this uncertainty works in favour of gold (and of silver, which is a similar safe haven but relatively cheaper),



Investment Clock*

Based on our indicator linking economic cycles and investment asset groups, outlooks have improved significantly in recent months, increasing the value of equity investments. The key regions of global economy, the US, Europe and China, also show signs of recovery and growth. It’s time for interest rate cuts, which could provide the basis for further acceleration. It is true that inflation has everywhere been slightly higher than desirable, so benchmark rates may decrease to a lesser extent and slower than before – for example, in America by 3×25 basis points during the year.

*The first version of the Investment Clock was introduced by the US banking house Merrill Lynch, and the current model is an enhanced version of VIG Asset Management. The model shows our current place in the world economic cycle. Our portfolio managers use forward-looking indicators in respect of both growth and inflation to identify the expected behaviour of the economy and investment assets accordingly.

** Typical performance of investment assets in the given phase of the economic cycle:

The hand of the clock indicates which economic cycle we are currently in. The lighter colored hands of the clock reflect the previous situation.

 Those investment instruments that are likely to do well in the given period. Those investment instruments that are likely to do less well in the given the period. Those investment instruments that are not likely to perform well in the given the period.

The Fund Manager’s Tactical Asset Allocation

In the short term, the market remains open to risk on improving macroeconomic data
positive macroeconomic fundamentals. For this reason, we maintain a strong overweight in equities, while reducing our main market positions.

The table is based on our Investment Clock and quadrant analysis***.


***Quadrant models help us identify investment target markets with the best prospects. Quadrant combines the tools of fundamental and technical analysis and also takes into account macroeconomic conditions, valuation indicators, the technical picture and sentiment factors (i.e. long- and short-term drivers).



Legal information

This is a marketing communication. To ensure you make a well-founded investment decision, you should inform yourself thoroughly about the fund’s investment policy, the possible risks of the investment and the dealing charges from the fund’s key investor information document, official prospectus and management regulations, all of which are available at the fund’s points of sale and on the company’s website ( Past performance cannot be relied on as a guide to future performance. The future yield achieved through the investment may be subject to tax. The tax and stamp-duty implications associated with specific financial instruments and transactions can only be accurately assessed in light of the individual circumstances of each investor, and these may change over time. It is the responsibility of the investor to enquire about the tax implications of the investment. The data contained in this communication is intended for information purposes only and does not constitute a solicitation to invest, a recommendation to buy or sell, or investment advice. VIG Befektetési Alapkezelő Magyarország Zrt. accepts no liability for any investment decision made on the basis of this communication or for the consequences of such decision.

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