Outlook & Opportunities: Global Equities

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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.