At GAM Investments’ latest Active Thinking forum, two of our brightest investment minds discussed global economic growth rates and commented on macro headwinds impacting UK equities.
Julian Howard – Multi-Asset Solutions
Despite recent Covid-19 treatment breakthroughs, such as new oral medication from Pfizer, our long-term view remains that global economic growth will remain lower for an extended period. The International Monetary Fund’s latest World Economic Outlook, published in October, supports this view and contains downward revisions to global growth, partly due to supply chain disruption and pandemic dynamics. Eliminating Covid-19 looks set to be a long journey, both psychologically and medically. Inflation has been stubbornly higher of late, but we do see signs that price pressures will ease as the economy continues to recover from Covid-19, even though it may not feel like it just yet for consumers at present. Sentiment around Covid-19, supply chains and central bank policy all look to be a dominating force for markets at present, but we believe clarity will emerge and confusion will clear, ultimately revealing long term stagnation and low rates after an initial cyclical rebound. In the equity universe, emerging markets, notably China, are showing some tentative signs of stabilisation but it is a long road back. While China faces near-term challenges of a strong US dollar, regulatory intervention and a zero-Covid policy, these are not permanent threats and we are already beginning to see improved performance from Chinese equities after recent volatility. In our view, China remains a very powerful secular play over time.
Adrian Gosden – UK Equities
UK equities have experienced a more challenging period of late, primarily due to macro headwinds rather than company specifics. First, concerns over the ‘Delta Plus’ variant of Covid-19 and potential ramifications of that mutation have caused nervousness among investors, leading to a move away from travel and retail names towards more defensive growth companies. The rotation was compounded by the Bank of England’s recent decision not to raise interest rates, which caught the market by surprise and led to a decline for sterling as well as bank stocks. Looking ahead, we expect rates to rise heading into 2022 and note that companies across the board are reporting wage pressure. Aside from the macro picture, we continue to be encouraged by company earnings statements with many names reinstating dividends. Corporate activity in the UK market also remains high.
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is not a reliable indicator of future results or current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented and are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. There is no guarantee that forecasts will be realised.