Global Equities Outlook & Investing Ideas

Equity managers talk recession, earnings, valuations and where they are eyeing interesting growth and value ideas.

Recession or rally? Besides artificial intelligence (AI), where’s the growth? How is inflation impacting equity markets? Is there opportunity in China’s reopening? Could there be a resurgence in energy? Are there value plays amidst volatility, especially in the banking sector?

As global markets continue to work through lingering conditions in these post-pandemic times, there are many questions on investors’ minds at the midyear mark. This diverse group of equity managers from across the Natixis Investment Managers complex share their outlook for the remainder of 2023 and opportunities they are identifying as long-term investment managers:

Ashish Chugh, Portfolio Manager, Global Emerging Market Equities, Loomis, Sayles & Co.
Aziz Hamzaogullari, Founder & CIO, Growth Equity Strategies, Loomis, Sayles & Co.
Jason Long, Partner, Portfolio Manager, International Equities, Harris Associates

Jens Peers, CIO, Portfolio Manager, Mirova US
Mike Tian, Portfolio Manager and Business Analyst, WCM
Chris Wallis, CEO & CIO, Portfolio Manager, Vaughan Nelson

Recessionary Pressures or Rally?
Chris Wallis: The key for the market in the second half of the year is probably going to be if the Fed is in a position to cut interest rates. If we're bringing down earnings estimates, but we're able to cut interest rates, then maybe we can sustain a higher level for the broad equity market indices – because we could maintain a higher earnings multiple. If the Fed is not in a position to cut rates, then it's going to be a different issue and the bigger risk is going to be around multiple compression. So unfortunately, I think we're going to have some more volatility through the end of the third quarter.

Jens Peers: We do expect interest rates will stabilize from here, but also expect inflation to stay high – albeit lower than we have had in the recent past. In such an environment, we expect central banks will not be too aggressive; they certainly won’t be too prudent either. This is an environment in which we think equities may be able to rally.

Where’s the Growth?
Aziz Hamzaogullari: For us, the growth needs to be both secular and profitable. Examples of long-term growth drivers we are focused on are the shift to electric vehicles, to online advertising, to e-commerce, and electronic payments. These are all secular growth drivers that we see over the next decade. There are also some specific growth drivers, for example, in the pharmaceutical area driven by patient needs, like obesity or curing rare diseases with gene and RNA technologies.

Where’s the Value?
Jason Long: It's clear that the European banking sector is cheap. As to what is needed for the market to more fully appreciate the value of European banks? I'd point to two potential possibilities. One, that investors start to appreciate the much stronger capital liquidity and overall financial position of the European banking sector versus previous periods. Successfully navigating the current period of uncertainty should help alleviate these concerns. Number two, I would say that the high free-capital yields should entice fundamental investors. So while the sector is trading at a 7% dividend yield, the banks are also returning a similar amount of capital via share buybacks.

Time to Rethink Emerging Markets?
Mike Tian: We think there is a lot of opportunity in China. One of our colleagues recently returned from China, and it is pretty clear that a lot of the animal spirits are back. Masks are off, people are in the streets, they are shopping like crazy, the restaurants are full. Hotels, airlines, and other service areas are doing well, too.

Ashish Chugh: Growth in emerging markets should be strong this year and next, according to IMF projections. They are projecting that emerging markets should grow at three times the rate of developed markets, with China and India alone growing at 5 to 6 percent and accounting for more than half of global growth. Also, equity valuations are looking attractive in emerging markets relative to the earnings growth.

Do Oil Prices Trend Higher?
Chris Wallis: I do think we're going to see higher energy prices again. We still have to get through this economic downturn. But when we do and demand resumes, you're going to see higher prices. I think we're going to struggle to maintain production with a combination of lack of investment and onshore in North America and continued production cuts out of OPEC.
International Monetary Fund (IMF) is an international organization that promotes global economic growth and financial stability, encourages international trade, and reduces poverty.

Messenger RNA (mRNA) is a type of RNA found in cells. mRNA molecules carry the genetic information needed to make proteins.

P/E multiple is the most common multiple used in the valuation of stocks. It is used to compare a company's market value (price) with its earnings.

Organization of the Petroleum Exporting Countries (OPEC) is an organization that controls petroleum production, supplies, and prices in the global market.

All investing involves risk, including the risk of loss. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. Investment risk exists with equity, fixed income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided.

This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Natixis Investment Managers, or any of its affiliates. The views and opinions are as of April 2023 and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted, and actual results may vary.

Foreign and emerging market securities may be subject to greater political, economic, environmental, credit, currency and information risks. Foreign securities may be subject to higher volatility than US securities, due to varying degrees of regulation and limited liquidity. These risks are magnified in emerging markets.

Emerging markets refers to financial markets of developing countries that are usually small and have short operating histories. Emerging market securities may be subject to greater political, economic, environmental, credit and information risks than U.S. or other developed market securities.