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Investment managers embrace key opportunities amid market uncertainty

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By Jessica Penny
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4 minute read

With inflation showing signs of taming, investors are navigating the themes that are poised to define 2H23.

With promising indications of subsiding inflationary pressures, investment managers have said there are ample opportunities presenting themselves in the latter half of the year.

According to DNR Capital, there are two emerging themes that are set to disrupt the current market.

Jamie Nicol, chief investment officer at DNR Capital, said the first is finding a balance between the productivity benefits of new technologies alongside an aging population, all the while considering the ongoing expenses required for transitioning to a net-zero future.

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“The market is trying to figure out this balance and decide on a clear direction on this issue,” he explained.

The other debate lies around the conflicting discourse between a hard landing versus a soft landing.

“Clearly, interest rates are on the way up and ordinarily we would expect the economy to slow in response to that. We have seen some evidence of slowing but the economy has been resilient to date. And that remains a key area of debate,” Mr Nicol added.

“What this means from a market and opportunities perspective is that after a very long period of uncertainty the outcome of these debates is not clear.”

While these questions have yet to be answered, DNR Capital has looked towards good quality companies to trade at discounts in the meantime.

“This environment has provided a rare opportunity to invest in good quality businesses that perhaps are getting disrupted through hiccup in earnings, change in CEO, or a range of events which are causing some of these better-quality companies to trade at discounts,” Mr Nicol explained.

He added that DNR Capital prefers to buy in periods of uncertainty, particularly when the upcoming macro framework is unclear.

“We look for quality characteristics, good management, good businesses, good industry structure, competitive advantages, good ability to earn strong margins over the longer term because the market tends to gravitate back to those companies over time.

“And right now, investors can pick up some of those businesses at really good discounts,” Mr Nicol noted.

Meanwhile, Franklin Templeton has urged investors to focus on the attractiveness of investments beyond cash including fixed income, equities, and alternatives.

Stephen Dover, chief market strategist at Franklin Templeton, said: “If 2022 was a year when nothing went right for investors, then the first half of 2023 flipped the script.”

Mr Dover believes the second half of 2023 offers opportunities for investors to get cash off the sidelines.

“The opportunities on offer – near and longer term – point to a simple conclusion. It is time to engage more fully,” he said.

Franklin Templeton remained optimistic about the outlook for global and local equities, anticipating benefits from taming inflation and positive earnings projections.

Looking beneath the surface of US equities, Mr Dover said that bifurcated earnings streams may be creating new patterns of return dispersion.

“Share prices are responding to earnings outcomes in different ways across sectors and styles. The disparity in returns may increase as earnings variability could be a key factor behind finding ‘winners and losers’.”

He encouraged investors to take their portfolios overseas following the recent success of several offshore markets.

Namely, over the past six months, Japan’s Nikkei has doubled the S&P 500’s 7 per cent return and the German DAX has trumped it by 3 full percentage points.

Mr Dover attributed this to more attractive valuations and superior earnings upgrades, which he expects will continue.

“With this hint of stability, second-half opportunities arrive in almost too many places, including alternatives,” Franklin Templeton noted.

Investment managers embrace key opportunities amid market uncertainty

With inflation showing signs of taming, investors are navigating the themes that are poised to define 2H23.

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