Across The Border

These core global themes are possible investment winners

Investment strategists say signs of a synchronised global economic recovery should benefit equity investments linked to technology and multinational conglomerates

PUBLISHED : Thursday, 13 July, 2017, 3:55pm
UPDATED : Thursday, 13 July, 2017, 10:15pm

A decade after the worst financial crisis since the Great Depression, the global economy seems to be settling into a stable, synchronised recovery path for the first time. As the global economic picture brightens, equities are considered as one of most attractive investment assets, in particular techs in the US and China and multinational conglomerates in Europe and Japan.

“For the first time in years, the world’s major economies appear to be on the road to recovery,” Andy Budden, investment director for Capital Group, said.

Across the globe, momentum is building.

The industrial sector has bounced back, powered by economic improvements in the US, Germany, France, UK, and China, thanks to increasing demand and a gradually weakening US dollar. Consumer spending has remained strong in many regions.

He noted the US economy is “firing on more cylinders”, estimated to grow 2.3 per cent in 2017, compared with 1.6 per cent in 2016.

“Nowhere is economic momentum more evident than in the US,” Budden said.

Since the end of 2007 financial crisis, the US recovery was largely propped up by a resilient consumer. But this time, manufacturing has provided positive momentum to overall growth, he said.

In addition, US corporate profits, which were under pressure in the past two years, jumped more than 13 per cent in the first quarter. Second quarter earnings are also expected to rise 8 per cent on-year, according to analysts’ estimates from a Reuters poll.

Combined with accelerating wage growth and retail sales, these conditions all point to faster US economic growth in the second half.

Europe also seems to have turned a corner and looks likely to match last year’s growth of 1.7 per cent.

In Japan, where efforts to overcome years of chronic deflation appear to be gaining the upper hand, the economy is projected to expand 1.2 per cent in 2017.

Meanwhile, emerging markets are forecast to grow 4.5 per cent growth this year, up from 4.1 per cent in 2016.

In particular, China has shown signs of stabilisation, as fears about an economic slowdown and a sharp devaluation of the yuan have receded.

“Last year everyone was worried about China. But the sentiment has improved,” Budden said. “Investors probably forget about the fact that China is a somewhat closed economy. The authorities have a wide range of tools to manage the economy and the currency, ” he said.

Geoff Lewis, senior strategist for Manulife Asset Management, was also upbeat on the global outlook.

“We are seeing a strong pick up in world merchandise trade. Growth has hit a five-and-three-quarter year high.” said Lewis.

Global industrial output has also accelerated since the first quarter, following two years of low growth.

Lewis is optimistic global growth momentum will continue to be strong in the second half.

Asset managers and strategists have set their sights on two types of equities which offer the most upside in the current environment -- sector benefiting from technological innovation and multinational companies.

“Strong earnings are expected from the technology sector, while companies domiciled in India, China, and Brazil are projected to see stable growth through 2018 following several uneven years,” Budden said.

Examples include Chinese online major Tencent and e-commerce giant Alibaba, as these e-commerce platforms will benefit from rapid growth in mobile commerce.

Asian electronics component manufacturers, such as Samsung, Taiwan Semiconductor and Hon Hai precision, are also set to receive a boost from growth in mobile commerce.

Privately-run Indian banks, such as HDFC and Kotak Mahindra, may also likely to enjoy tailwinds brought by the country’s fast pace of growth.

Among US-listed companies, those focused on cloud computing and online retailing are also good investment options. Alan Wilson, portfolio manager for Capital Group, said examples include Amazon, Microsoft, and Intel.

Other attractive investments include “smart” multinationals, which have positioned themselves to benefit from emerging centres of growth amid ongoing globalisation.

“A new breed of company is on the rise, one whose business model is probably more resilient as global trade infrastructure changes,” said Rob Lovelace, portfolio manager for Capital Group.

These global businesses derive a significant portion of their revenues from outside of their home countries and are thereby positioned to access growth.

Examples of large international companies that have outpaced the global equity market since 2008 include Swiss foodmaker Nestle, pharmaceutical companies Novartis and Roche, Japanese car maker Toyota, British American Tobacco, and Belgium-based brewing company Anheuser-Busch InBev, according to Capital Group.