The Point

Global equities: Be patient, but ready to pounce

Most global equity markets are in a drawn-out, bottoming process, says Pendal’s Chris Lees, who manages Pendal Global Select Fund.

But several segments are showing improving relative fundamentals, share prices and attractive valuations, he says. These include:

• Quality growth stocks, many of which are down up to 50%
• UK and European global champions, plus Japanese exporters
• Emerging markets domestic consumption stocks
• Stocks exposed to China’s reopening and recovery

“Given the recent rally and 2023 recession risks we will wait to buy the dips throughout the year,” he says.

Lees remains 50% bullish and 50% bearish on equity markets.

“Short-term reasons to be bearish include a recession potentially becoming a financial crisis or a larger event such as a contagion.

“Medium-term reasons to be bullish include the Fed regaining credibility with inflation and interest rates stabilising this year.”

The new US law driving sustainable investment opportunities

The macro-economy – inflation, growth, employment – drives top-line sentiment among investors, observes our head of global equities Ashley Pittard.

But earnings in sectors and companies drive the valuation of specific stocks, he says.

Take Facebook owner Meta, which gained 25 per cent last week after a better-than-expected result. Then the stock fell back sharply, albeit briefly, when strong US labour force hinted at further rate rises.

Overall, the latest quarterly US reporting season is looking better than expected at the halfway point, says Ashley.

Earnings growth is down about 3 per cent “which is marginally better than what was forecast”.

Ash believes it’s time to “take a little bit of money off the table” when it comes to energy stocks.

Whether it’s tech stocks or sporting teams, go for ‘franchise assets’

THE record-breaking $US6 billion sale of the Washington Commanders NFL team last month is the latest in a rush of billion-dollar transactions involving trophy sporting teams.

If you can choose the right sporting “franchise” to buy, the returns are eye-watering.

Our head of global equities Ashley Pittard hasn’t bought any sporting teams recently.

But like the most successful sport transactions, Ashley focuses on what he calls “franchise assets”.

“Franchise assets – companies that are number one or two in their space or are monopoly or duopoly business – are highly valued among investors at the moment,” Ashley says, pointing to the tech leaders dominating Wall Street.

“The lesson for investors is that you want to be selective, and you want to be concentrated when investing.”

“You also want to be defensive because there are uncertainties in the world around the macro-outlook and credit.”

Global equities: Boeing, Airbus look good as tourism takes off

If you experienced shoulder-to-shoulder tourist crowds during a recent overseas holiday, you might be wondering how to get exposure to the fast-recovering travel industry.

One way is via plane manufacturers says Pendal global equities PM Ashley Pittard.

Ashley recently attended the 2023 Paris Air Show during two months of travel, where he met company executives across Europe.

More than 1000 new plane orders were announced at the show, demonstrating the rude health of the two major manufacturers, Boeing and Airbus, says Ashley.

“Demand for planes is very, very strong,” Pittard says. “The backlog for the industry is about 8000 units which is about the next ten years of production.

“China is slowly opening up again, albeit slower than Europe. There is also a sustainability trend – airlines are getting rid of older planes and buying new, more efficient options. And there is also higher airline yields – more people are flying.”

Ashley Pittard: The most forecast recession ever has been delayed again

Bank of America last week became the first big Wall Street bank to reverse its recession call.

Are they right?

“Given the strong capital expenditure numbers we’re seeing in the US June-quarter earnings season, it’s going to be very hard for the US to have a recession this year,” says Ashley Pittard, who heads up Pendal’s global equities investment team.

“What you are seeing in the earnings numbers, and what you have seen the entire year, is that capital expenditure is accelerating – 15 per cent in the current quarter, year-on-year, and 14 per cent in the first quarter.”

“It’s very hard to have a recession when your capital expenditure is so high,” Ashley says.

In terms of numbers, US company earnings have beaten estimates by about four per cent, and by one per cent on sales.