We have never attempted to predict market cycles and won’t try to call the bottom on this one either. But what we will do is continue to look for those long-term investment opportunities that exist in all market conditions.
Cloud cover
The outlook for global equities is definitely cloudy. In the US, inflation is sitting at its highest levels in 40 years and the Federal Reserve has a challenging path ahead in terms of managing monetary policy and interest rates without tipping the US into recession. Due to its late start, it’s not clear whether the Fed will be able to tame inflation but it is hoped that a recession can be avoided.
In addition to the US, there is of course the ongoing conflict in the Ukraine, which creates uncertainty for European markets. There is also the impact of the conflict on the supply of global oil — which has seen petrol prices skyrocket — Russia’s blockade of Ukraine’s grain exports have also drastically reduced the global supply of grain.
The Ukraine situation will continue to weigh on commodities and supply chains until a resolution is found and the outlook for companies in Europe remains troubled.
Zero-COVID policies in China impacted its economic growth due to renewed lockdowns and the resulting contraction in manufacturing and consumer spending. This has also snarled the global supply chains of many goods.
Opportunity knocks
Regardless of the macroeconomic outlook, there are opportunities in all markets if you look hard enough. We will always seek out companies with idiosyncratic growth drivers that may be better positioned to weather current pressures, and we continue to find these companies even in hard-hit sectors, such as technology, industrials and materials.
Companies, for example, which benefit from structural growth trends such as digitisation, decarbonisation, outsourced manufacturing and emerging market convergence, to name a few, should continue to deliver growth despite any cyclical growth headwind. For example, the trend toward vehicle electrification will likely result in accelerating growth trends for companies levered to it, such as Aptiv PLC, which is focused on providing products and solutions around vehicle electrification. Companies like Aptiv could potentially outgrow auto industry growth rates as adoption and penetration of their products rise across the industry.
From a regional perspective, we are optimistic that the situation in China is improving. After growth momentum decelerated sharply due to tighter controls, the most significant disruption to production and trade activities has likely passed. This reopening of China’s economy, combined with government stimulus measures, saw insurers such as AIA Group and Ping an Insurance Group Co. of China benefit during last quarter.
There’s likely to be continued improvement in the second half of 2022 as authorities continue to ease COVID restrictions, reducing transport and industrial production disruptions, and as stimulus measures take effect. China’s actions may also benefit select commodities and metals producers beyond China, such as those in Brazil and South Africa.
Elsewhere in Asia, many economies have made significant progress on vaccination and have sustainably opened their economies. We believe opportunities exist in Thailand and Indonesia, especially on the back of increases in travel-related spending.
In for the long haul
There is no denying there are many uncertainties in current global equity markets. But investors will be better positioned to weather market volatility with a disciplined approach and a long-term commitment to a diverse portfolio allocation that includes a combination of different styles, including a market cycle-agnostic approach to global investing.
Keith Creveling, co-chief investment officer global growth equity, American Century Investments
