In our equities outlook webinar, experts from Invesco's equities teams' facilitated a wide-ranging discussion about their investment outlook as well as their investment process. Watch the replay below.
On February 21st I hosted an equities outlook webinar together with my colleagues Bethany Shard (UK equities), Andrew Hall (Global equities) and Charles Bond (Emerging markets). We had a wide-ranging discussion about their investment outlook as well as their investment process and I have tried to distil some of the key takeaways below.
1. When faced with a trend such as the Magnificent 7, “burying your head under the duvet isn’t a strategy”: at Invesco the global equities team model all the major index stocks and thus make an active decision when they decide not to own one of them. With this active approach they have managed to both outperform in 2022 (when tech lagged) and in 2023 (when tech led). Their key overweight amongst the Magnificent 7 is Microsoft.
2. Whilst the current focus for the market is on 7 particular companies, it is important to remember that over any 10-year period the top stocks are constantly evolving and it would be surprising if this wasn’t the case over the next decade too.
Source: DB Asset Allocation, Deutsche Bank as at 13 February 2024.
3. In EM/Asia investors have had a similar Fab 4 to deal with: Tencent, Alibaba in China; TSMC in Taiwan and Samsung in South Korea.
Source: Factset, Invesco at 27 February 2024.
4. The UK market, with its low share of technology, is actually a good portfolio diversifier for a global investor given its value characteristics and index composition:
Source: Invesco, Factset, 31 January 2024. Chart shows distribution of weightings by major sector. Excludes: Real Estate, Telecoms and transactional cash held.
5. 2023 was meant to be the year of the Chinese unlock…. but the Chinese market proved a real disappointment which raises the question: is China the new Japan? There are some similarities (such as declining populations) but also some major differences: China is at a much earlier stage in its economic development, Japan’s asset bubbles (property and stock market) far exceeded China’s (the China MSCI index is flat since 1992!)
Invesco Global Emerging Markets Fund (UK)
As the fund typically has a concentrated number of holdings, it may carry a higher degree of risk than a fund which invests in a broader range of holdings or takes smaller positions in a relatively large number of holdings.
The fund may use derivatives (complex instruments) in an attempt to reduce the overall risk of its investments, reduce the costs of investing and/or generate additional capital or income, although this may not be achieved. The use of such complex instruemnts may result in greater fluctuations of value of the fund. The manager, however, will ensure that the use of derivatives within the fund does not materially alter the overall risk profile of the fund.
Source: Factset as at 31 January 2024.1 Relative to MSCI Emerging Markets Index.
6. India market looks “increasingly frothy” and we are currently at max underweight. Longer term Charlie agrees that India has lots of potential but struggles with broader valuations in the market. Historically it has been a good source of alpha for the funds.
Source: LSEG, MSCI data to 31 January 2024. Ranked by highest to lowest valuation gap vs 10y historical average .
7. Calibrating geopolitical risks can be tough when the outcome is binary and it could be that investors over discount the risk (of Taiwan and China) given the recency bias of the Russian invasion of Ukraine. He manages this risk by tempering his overweight in China.
8. Being contrarian can increase the risk of investing in value traps. Our speakers highlighted how they protect against this risk:
9. Regarding the investment opportunity set and how this looks in early 2024 we are currently seeing a step up in cash returns (both dividends and buybacks) in the UK (and Europe more broadly) and this is occurring across the market including mining, energy and banks and should provide a support to the market.
10. Whilst Japan gets the attention of most market commentators as it hits a new all-time stock market high, the building corporate governance reforms in South Korea is also worth attention: the chaebol structures have been really helpful for South Korea’s economic development (like the zaibatsu in an earlier time for Japan) but have not always aligned with shareholder rights. This seems to be changing with the governments “Corporate Value Up” initiative.
In our equities outlook webinar, Invesco experts facilitated a wide-ranging discussion about their investment outlook as well as their investment process. Watch the replay below.
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The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
Invesco Global Emerging Markets Fund (UK)
The Fund invests in emerging and developing markets, where there is potential for a decrease in market liquidity, which may mean that it is not easy to buy or sell securities. There may also be difficulties in dealing and settlement, and custody problems could arise. The Fund may use Stock Connect to access China A Shares traded in mainland China. This may result in additional liquidity risk and operational risks including settlement and default risks, regulatory risk and system failure risk. The Fund may use derivatives (complex instruments) in an attempt to reduce the overall risk of its investments, reduce the costs of investing and/or generate additional capital or income, although this may not be achieved. The use of such complex instruments may result in greater fluctuations of the value of the Fund. The Manager, however, will ensure that the use of derivatives within the Fund does not materially alter the overall risk profile of the Fund.
Views and opinions are based on current market conditions and are subject to change. This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. For the most up to date information on our funds, please refer to the relevant fund and share class-specific Key Investor Information Documents, the Supplementary Information Document, the financial reports and the Prospectus, which are available using the contact details shown.
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