Go global: investors look forward emerging markets
#investments
In 2023, international investors are taking a granular approach when it comes to equity investing. In anticipation of the Chinese growth reacceleration, they are loading up on shares of Chinese companies, as well as European ones - these benefit from this growth. US funds seems to be caught offside, suffering from the risk of a slowdown in the US economy and continued increases in the Fed's policy rate.
The US market could be described as two-faced at the moment: on the one hand, there are positive expectations from the Fed’s monetary policy amid disinflation. On the other hand, since the middle of winter, only the lazy one does not predict an earnings recession for the market, when, amid a stable or slightly worsening macro background, companies’ incomes fall, missing analysts’ and investors’ expectations.
The economy entered 2023 with quite negative expectations. Capital hates uncertainty, so the players are wary of the prospects for US stocks. It is not worth talking about valuations without reference to profits and rates since there is always a chance that profits will not disappoint (and the momentum in the American macro is now very impressive) and rates will fall. In such a scenario, one can no longer say that stocks are very expensive. Of course, if profits and economic expectations are on the downside and interest rate expectations look “up” (theS&P 500 is priced too expensive), then there is no upside potential to speak of.
In Europe, the economic surprise turned out to be very strong because of extremely low expectations. Statistics on the real sector has systematically beaten expectations and inflation has also begun to slow down, it might even seem that we’re already past the peak. It is a heavy cocktail for short sellers: the squeeze also added momentum to the market.
In general, at the end of 2022 - the beginning of 2023, the consensus of large investment companies was to ‘bet on the global’. That means rotation from the US to other markets, especially EM. Quite rightly, China has risen sharply, where both positioning was rather modest, and the surprise turned out to be powerful, as the opening of the country is happening faster than everyone assumed.
In general, global growth is falling out of sync - developed economies, in particular, the UnitedStates, are slowing down while the emerging economies have every chance to show accelerated growth rates. In addition, many countries have already passed the peak tightness in monetary policy and have room to add monetary stimulus, provided that inflation slows down steadily. In Brazil, this is especially noticeable - against the backdrop of one of the highest real interest rates in the world, growth here is constrained by fiscal/political uncertainty and still high inflation. If these two factors recede, we may see an increase in demand for local assets.
In 2023, international investors are taking a granular approach when it comes to equity investing. In anticipation of the Chinese growth reacceleration, they are loading up on shares of Chinese companies, as well as European ones - these benefit from this growth. US funds seems to be caught offside, suffering from the risk of a slowdown in the US economy and continued increases in the Fed's policy rate.
The US market could be described as two-faced at the moment: on the one hand, there are positive expectations from the Fed’s monetary policy amid disinflation. On the other hand, since the middle of winter, only the lazy one does not predict an earnings recession for the market, when, amid a stable or slightly worsening macro background, companies’ incomes fall, missing analysts’ and investors’ expectations.
The economy entered 2023 with quite negative expectations. Capital hates uncertainty, so the players are wary of the prospects for US stocks. It is not worth talking about valuations without reference to profits and rates since there is always a chance that profits will not disappoint (and the momentum in the American macro is now very impressive) and rates will fall. In such a scenario, one can no longer say that stocks are very expensive. Of course, if profits and economic expectations are on the downside and interest rate expectations look “up” (theS&P 500 is priced too expensive), then there is no upside potential to speak of.
In Europe, the economic surprise turned out to be very strong because of extremely low expectations. Statistics on the real sector has systematically beaten expectations and inflation has also begun to slow down, it might even seem that we’re already past the peak. It is a heavy cocktail for short sellers: the squeeze also added momentum to the market.
In general, at the end of 2022 - the beginning of 2023, the consensus of large investment companies was to ‘bet on the global’. That means rotation from the US to other markets, especially EM. Quite rightly, China has risen sharply, where both positioning was rather modest, and the surprise turned out to be powerful, as the opening of the country is happening faster than everyone assumed.
In general, global growth is falling out of sync - developed economies, in particular, the UnitedStates, are slowing down while the emerging economies have every chance to show accelerated growth rates. In addition, many countries have already passed the peak tightness in monetary policy and have room to add monetary stimulus, provided that inflation slows down steadily. In Brazil, this is especially noticeable - against the backdrop of one of the highest real interest rates in the world, growth here is constrained by fiscal/political uncertainty and still high inflation. If these two factors recede, we may see an increase in demand for local assets.
