State Street Global Advisors’ President & CEO delves into Dubai's appeal and offers insights on market outlook

Yie-Hsin Hung, President & Chief Executive Officer, State Street Global Advisors, participated in a fireside chat on ‘High Interest Rates and Macroeconomic Volatility’ with Joumanna Bercetche, TV Anchor, Bloomberg, UAE, at the Dubai FinTech Summit 2024. This is what she said. 

State Street Global Advisors (SSGA) is Reopening its Dubai Office

Ms. Hung highlighted Dubai as a growing financial centre with a vibrant intermediary market and an influx of family offices and hedge funds. Consequently, SSGA is reopening its Dubai office in DIFC to offer asset management services, including index exposures, ETFs, and active cash management solutions. Ms. Hung also confirmed SSGA’s plans to double its resources across the region with portfolio management and investment specialists.

Fed Monetary Policy Outlook

Ms. Hung sees the Fed's recent pronouncements as signalling a dovish shift towards rate cuts, anticipating rate changes could come as soon as July 2024, with potential for a total of 75 basis points in cuts. This view is further supported by SSGA’s assessment of disinflationary pressures and a weakening labour market.

Inflation and the Fed's Response
Ms. Hung disagreed with the view that central banks face difficulties in bringing down inflation in the final stages, citing disinflationary trends in goods and services, highlighting that the focus should be on wage inflation, and recent job data, indicating a shift towards lower-quality jobs, which they believe will put downward pressure on wages.

SSGA's Investment Positioning

Despite a weaker US economy, SSGA remains overweight in equities, cash, and gold in the short term and sees continued strength in S&P 500 earnings, while simultaneously finding the emerging markets attractive due to their growth dynamics. Cash holdings remain motivated by high interest rates, however, SSGA is prepared to reduce them in order to deploy capital as other opportunities arise.

Geopolitical Risks and Investment Strategy

Geopolitical tensions pose risks of supply chain disruptions and energy price shocks, potentially leading to stagflation. Ms. Hung suggested potential hedges like long energy positions, gold, and defensive equity sectors like utilities, healthcare, and consumer staples. She also recommended considering volatility instruments and currencies like US dollars to hedge against potential disruptions.

Impact of US Elections on Investment Strategy

SSGA's medium-term outlook is less sensitive to the US election compared to previous cycles. A Republican-controlled Senate could lead to fiscal policy debates, but likely less stimulus than under the current administration. A Trump presidency might bring back immigration restrictions, tariffs, and a focus on fossil fuels, impacting inflation and interest rates. Overall, Ms. Hung saw less difference in investment implications between the two potential outcomes.

US Dollar Outlook

Ms. Hung expects the US dollar to weaken by 10-15 per cent in the medium term if the Fed cuts rates, predicting the dollar's dominance will persist, but its valuation will adjust.

Global Markets Outlook

Ms. Hung also predicted the EU will be the first to cut rates, followed by the US, Canada, and the UK. Japan is expected to raise rates by 15 basis points before the end of the year.