Throughout the month, the Fed reiterated that there is no urgency for interest rate cuts during the first half of 2024. Furthermore, they specifically addressed risks within the commercial real estate sector, acknowledging that while the situation is currently manageable, it will lead to more banking failures. This aligns with our cautious perspective regarding the potential consequences of policy mistakes if interest rates are kept elevated for an extended period.

China has initiated action to support “whitelist” projects announced previously, with major commercial banks approving over RMB 200 billion in loans to help finance the completion of these projects. We view this as a positive first step, but additional financing will likely be needed to ensure sufficient liquidity to complete these projects. As such, we will monitor for further announcements on this topic, as well as its impact on property sales and prices.

The recent Two Sessions convened by the Chinese Communist Party saw similar 2024 economic targets set as last year. The 5.0% growth domestic product (“GDP”) growth target set for 2024 seems ambitious given the modest deficit target of 3.0% and a consumer base that is focused on saving. However, we believe the GDP target may be attainable, as we are observing gradual shifts in consumers’ behaviour where they are increasingly more inclined towards spending, and we also note that growth outside of the real estate sector remains robust.

Following a review of the latest earnings reports from leading corporations worldwide, we've noted predominantly robust earnings growth for 4Q23, with some companies projecting modest top-line expansion for 2024. However, US stocks that missed results and guidance expectations fell sharply given their mostly elevated valuations. With the outlook becoming increasingly uncertain, we will monitor closely for any signs from both economic and industry data to decide the next portfolio move. Regardless, we remain positive on the long-term outlook of our holdings.