全球視野：我們該何去何從？(只提供英文版本)

Bullock: Firstly, a big welcome to all of you for joining today’s session, which is called Where Do We Go From Here? And to help us do this, I’m joined by our asset class heads across the firm, who have the enviable task of discussing where they expect markets to go for the rest of the year and beyond.

Before we get into the detail, by way of quick introductions, I’m Matthew Bullock, EMEA Head of Portfolio Construction and Strategy but, most importantly, I’m joined by three asset class experts, in no particular order, Jim Cielinski, Global Head of Fixed Income, Lucas Klein, Head of Equities, EMEA and Asia Pacific, and Marc Pinto, Head of Americas Equities. Gentlemen, welcome.

So, as I said at the beginning, the topic of the day is where do we go from here? But before we work out where to go, Jim, I’d like to ask you this question. Where have we been over the past six months, where are we today and have there been many surprises along the way?

Cielinski: Well, we have started this year, as a fixed income investor we started very much like last year, which is one of the worst starts to a year for the bond markets that we’ve ever seen, to be honest. Rates are up. A lot of this is due to the fact that we’ve priced out expectations of rate cuts for central banks. At the beginning of this year we had six or seven rate cuts priced in. We now have less than two. But the remarkable thing is how calm the markets have been outside of just interest rates, which have risen sharply over the course of the year.

Inflation has been a bit sticky but the consumer resilience, to me, is one of the real underlying stories behind markets and that’s allowed, I think, growth expectations to stay solid. Inflation expectations have remained anchored. Even though inflation is sticky, long-term inflation expectations are very well anchored and this has really allowed markets, risk markets like corporate credit, things like that, to really embrace the soft landing The elusive soft landing, I think, which was seen as a long shot a year ago, is now seen as a central case. So, again, bad start for bond markets. The silver lining there is you have yield, you have income is more attractive than it has been for a long time but I’d have to say that globally the consumer resilience and just the underlying strength of the global economy in the face of higher rates has probably been the big surprise.

Bullock: Marc, if I throw it to you, despite all of the uncertainty, equity markets have generally had a decent run, particularly in the US. Why do you think equity markets have been so quick to shrug off the economic headwinds?

Pinto: Matt, I think there’s three reasons why the US equity markets have actually been very resilient. The S&P is up close to 10% year to date. So, the first reason is that the proverbial soft landing, as Jim referenced, is definitely within sight.

I think we have the right balance of factors that one needs for a soft landing, which is some economic slowdown but not too slow, so that we avoid a recession, some moderating in inflation, which we’re starting to see. We’re clearly nowhere near or we’re not near the Fed’s  2-3% inflation target, probably closer to two. But we are seeing some inflation moving in the right direction and, for example, the April jobs report, wage inflation was up 3.5% on an annualised basis, which was a deceleration from months prior.

In the soft landing scenario, it’s typically a very good backdrop for equities, particularly growth equities, and that is the environment that I think the market is starting to price in, although clearly when we get data that suggests that maybe the economy is running too hot or that inflation is still at levels that are above the Fed’s expectations, then that’s when we see the market retrench.

The second reason is you reference economic headwinds but the economic headwinds in the US are substantially lower than they are in the UK, than they are in Europe. For example, in the first quarter, the US economy grew or, sorry, in 2023, the US economy grew 2.5%. It grew 1.6% in Q1. I think Q2 GDP growth is expected at 3.3. Those numbers are substantially better, they’re better than the UK and they’re substantially better than the eurozone. So, on a relative basis, if one is looking for economic growth, the US is probably, outside of emerging markets or non-developed markets, is the best place to look. The third reason is that we have a number of secular growth drivers that are driving equities higher. And, obviously, they’ve been widely talked about, whether it’s artificial intelligence, whether it’s innovation in health care and what we’ve seen in the performance of the Magnificent Seven that, despite everybody’s expectations, continue to perform very well. And they’re performing well for good reasons because the secular trends, like artificial intelligence, Internet of Things, cloud-based computing, those are all very much alive and they’re driving revenue and earnings growth. Notwithstanding the economic, shall we say, tepidness, these secular trends are driving earnings for the large cap US companies higher and, at the end of the day, stock prices follow earnings. So, that’s probably the third reason why the equity markets, especially in the US, have been very resilient.

Bullock: Thanks, Marc. Lucas, we heard about the US equity markets doing quite well, being resilient. However, you’ve also got the task of looking after Europe and Asia, which is much more of a mixed bag. Are there any areas that the team has identified as being particularly interesting or areas where you’re remaining largely cautious?

Klein: Thanks, Matt. Look, I guess as a starting point I’d sort of like to turn that question on its head a little bit. The US market has outperformed the rest of the world for most of the last 15 years in equities and if you look at the last 50 or 60 years’ worth of history in equity markets, that’s the single longest period of leadership by one region. And so I think one of the questions we have to ask is how long can that last? I’d also say we’d all agree the price you pay for an asset is an important determinant for the return that you realise over the holding period of that asset. I think it’s Warren Buffett who said the three most important words in investing are margin of safety. And so if you look at the valuation spread of non-US markets to US markets, that valuation spread is the widest that it’s been in at least 25 years’ worth of data and, by the way, that holds up even when you adjust for industry mix. And so just to say the rest of the world is on sale. Now, valuation isn’t sufficient to spark a market rally but it can definitely tilt the odds in your favour. An example of that is China, where equity markets went through three or four really difficult years of underperformance. The market got really cheap and with a with a slight whiff of good news in April, the equity markets have ripped. They’ve jumped about 20% or so and Hong Kong is now the best performing equity market in the world year to date. So, I guess I would just say there are opportunities outside the US.

Two I’d point out where we’re constructive are Europe and Japan. On Europe, I’d point out that the valuation discount that I just mentioned is quite extreme and there is a greater cash return to shareholders. If you look, as a percentage of market cap, Europe and UK corporates are returning around 5% or 6% of their market cap each year to shareholders via dividends and buybacks. That’s about twice the rate of the US. So, if you invest in European equities, you get your cash back.

For Japan, on the other hand, I’d say that’s the second market where we see real opportunities and that’s largely driven by the corporate governance reforms that are occurring. As you know, the regulator and the government have both encouraged corporate governance reforms there, whether it’s enhanced representation of independent directors, enhanced disclosure, encouraging institutional investors to engage more with corporates or a reduction in cross-shareholding. So, all of those should improve returns, it should improve valuation and provide a long-term tailwind to the Japanese market.

Bullock: Thanks, Lucas. Now, I just want to cover a broader section, which is the firm has published what we would see as the three structural changes that will drive market returns in the years ahead. Now, I want to focus in on each of these drivers to understand what the potential implications are for your respective markets over the rest of the year but also how you’re positioning for the longer-term growth. And just for a quick reminder to the audience, if you haven’t heard about what we’re seeing as the three structural changes, the first one is the return of the cost of capital, the second one is demographic drivers and the third is geopolitical realignment.

And so we’ll go through each of those in turn but, Jim, let’s start with you and I want to start with the return of the cost of capital. And even if we do see rate cuts coming through from central banks in the second half of the year, rates are still likely to be higher than in recent years. So, how does that change how you’re positioning fixed income portfolios, especially when it comes to credit quality?

Cielinski: Sure, Matt. I think we focus a lot on the negative impacts of higher interest rates. There are a lot of positive impacts as well. First of all, you get return on the asset class. And, secondly, it’s been a reminder in recent years that inflation, if you’re an indebted company, is not a bad thing. Higher inflation allows you, if you have debt, to pay off in, basically, what is a devalued currency. And that can be a good thing. Why is it bad? It’s because when inflation is so high, if it is so hot that it forces a policy mistake or a policy reaction that kind of sends you into recession and is destabilising, then it’s an issue. That’s why the soft landing that we’re talking about is so critical. It has allowed inflation to devalue the debts of companies. The underlying growth picture has allowed EBITDA and earnings and cash flow to pick up. And therefore credit quality, despite the higher rates, has not only held in, it’s actually improved in many cases. So, I think a reminder that inflation, higher rates, what it creates is dispersion, creates uncertainty, but at its core it’s actually good for fixed income. The distortions we saw in markets kept a lot of people away from bonds. We’ve had losses as those distortions have evaporated but today you are looking at yields higher than they have been in many years. Companies have used this prudently, I think, to term out their debt and so there’s no near-term maturity walls for most companies that would threaten defaults. And so, yes, we are seeing a new environment, companies have reacted well and if you get the soft landing that keeps the economy propped, this is actually a fairly good picture.

What I would say, though, is this. When you’re when you’re priced at valuations that don’t give you a lot of cushion, and that’s where we are today. Spreads have come in. They’re tighter than they have been. So, they reflect that lower default environment. What it means is that you have to be very prepared for what could go wrong. That’s not a statement that it will go wrong but look for where you’re compensated for risk. And in our case, I think a diversified portfolio that might include EMD, might include asset-backs, include mortgages, all these things in addition to corporate credit I think just gives you a better balance in the event of an economic slowdown towards where those troubles might emanate from. And so, for me, it is a market of dispersion. If you diversify globally, diversify across regions, across credits and industries but really keep an eye on those companies that will get hurt by higher rates. And this is where you have to differentiate between nominal interest rates, which can be good, real interest rates. If, after inflation, interest rates are high, that’s quite restrictive and that’s where companies start to get into trouble. Some companies will do that. We are already seeing this. So, despite 80-90% of companies doing really well, there’s 10-15% of companies that are stumbling.

And capturing that dispersion, to me, is key because the higher rates are good for many but not good for all and they’re negative for some. So, recognising the way in which higher rates are kind of filtering through to balance sheets, to credit quality, not just in corporate credit but emerging markets, mortgages, asset-backs, all these different sectors have different interplays, I think, with the rate environment. So, you really have to look across the full spectrum would be my answer, Matt.

Bullock: Thanks, Jim. And, Lucas, I want to come to you about the geopolitical realignment, where I think of dispersion and I saw you nodding quite a lot with Jim there, but dispersion is a critical part of that. With so many changes in the balance of power across continents and countries, whether that be wars or elections, it has to have a profound impact on how companies operate, how regulation is applied, how supply chains work. There’s going to be big winners but also big losers from that. So, with your hat on, how do you begin to approach this when looking at which companies to own or avoid?

Klein: It’s a great question, Matt. Look, I think the approach that our teams try to take to this is, first and foremost, embrace change and just recognise that the next 30 years are going to look really different from the prior 30. So, we don’t rely on old rules of thumb. 2004 or 2014 doesn’t necessarily work in 2024 and beyond. This is why it’s important to have a deep commitment to fundamental research and roll up our sleeves and do the work. And so we talk to the entire supply chain, we talk to regulators and competitors and customers to try and get a deep sense of where the winners and losers are going to be. Just to point out some examples that the team has identified, this geopolitical realignment, we think European defence is an area where there are clearly going to be winners. There was this decades-long peace dividend and that was really powerful but that meant that when the Ukraine war started in 2022, Germany had two days’ worth of ammunition stockpiles and only about 15-20% of its land and air vehicle fleets were operable. So, if you just extrapolate that the magnitude of the investment needed to reflect the new reality means it plays out over many years. And we see order backlogs in this industry already pushing into the 2030s but the stocks actually reflect normalisation in around three years. So, we think that’s an area where there are clear winners.

One area that’s really disadvantaged could be European auto manufacturers. The industry already has challenges with overcapacity and potentially being behind on EV technology. Pricing is challenged in China and the same could happen in Europe if China starts to export this overcapacity. Europe could react with import tariffs but China could retaliate. For German carmakers, China still accounts for over 30% of their profits.

Finally, we’ve got an election coming in to us in November and I think President Trump has threatened the European auto industry with import tariffs if he were to be re-elected. So, again, that’s an industry where we see potential challenges. Those are just two examples of where, even within the same region, both actually classified as European industrials, we see real bifurcation in winners and losers.

Bullock: Thanks, Lucas. And finally, Marc, demographic change. Society is changing significantly, how we live, how we work. The impact of COVID, in particular, changed all of that forever. And when you add in the impact of rapidly evolving technology, especially AI, which I know you mentioned a bit earlier on, it presents a number of opportunities for investors. But how do you differentiate between the overhyped trends and the genuine longer-term trends, especially right now, when everyone’s looking for the big growth stories out there?

Pinto: It’s an interesting question. I think there are many trends that are here to stay and I don’t know if there are any overhyped trends but I think there are trends that might be transitory. Let me give you an example. Post-COVID, we’ve seen a huge resurgence in travel and leisure and it makes sense because during COVID people were not able to travel, they were locked in their homes, they were spending their discretionary money on goods and services. Well, that’s reversed. And so we’re seeing a lot of growth in the travel segment, whether it be airline flown miles, whether it be hotel occupancy rates. And it makes sense. There’s a pent-up demand for travel and it seems to have lasted now a couple of years. I don’t know if this that’s going to be forever. At some point. I think travel and leisure will slow down to more normal levels, although clearly this generation, the younger generation is more into experience than purchasing hard goods.

And we’ve seen examples of that current consumer behaviour in terms of different segments within the consumer sector. I’ve mentioned travel and leisure have been strong. In terms of discretionary goods and even non-discretionary, we’ve seen a resounding trade-down effect by the consumer whereas when they were locked in their homes during COVID they were buying the most expensive detergent because they didn’t have anywhere else to spend their money. Well, those times have changed. Obviously, the other big impact from COVID and just demographic changes has been the ability to work from home, the ability to work remotely. That is, I think, a trend that is here to stay. It’s very hard to put that genie back in the bottle. People get used to being able to work from home on a Friday. It’s hard to probably tell them to come back into the office on a Friday as well. So, how are we seeing that impacting? Well, we’re definitely seeing lower occupancy in commercial real estate. I think it’s fair to say the commercial real estate market is pretty soft and we’re seeing that in terms patterns, in terms of city populations, people moving outside of the cities. And I think that is going to continue. And, obviously, we have the technology to enable that. The quality of this video, virtual presentation, I think, speaks to that. And it’s become an accepted norm.

So, we expect to see continued work from home and all the ancillary aftermath effects of that. In terms of AI, I think we are very early days AI, in artificial intelligence, but we are already seeing an impact. And so, for example, in preparing for this panel, I actually used Microsoft Copilot to help educate me on some of the demographic trends and global trends that I knew we’d be talking about. And hopefully I’m sounding more better informed but if not then we know that artificial intelligence has got a way to go.

Bullock: We’ll let the audience decide that, Marc.

Pinto: Yes. But it is a powerful tool and I think we’re really just hitting the tip of the iceberg and as a firm we’re very focussed on deploying artificial intelligence internally to make us work smarter, to make us work more efficiently and that’s going to continue. And so what is in the artificial intelligence ecosystem that, as investors, we focus on? Well, we all know that artificial intelligence and machine learning require huge amounts of computing power. And so who supplies that computing power? Well, it is the semiconductor companies. And so we’ve all seen the performance of Nvidia as sort of the poster child for that but we like to look at the second and third, the ancillary drivers of these trends. And so we’ve not only been focussed on the semiconductor companies but the semiconductor capital equipment companies, the companies that make that supply the tools to help make these leading-edge microprocessors and GPUs that are needed to run AI computing systems.

And then you can even take that a step further. We all know that there are going to be a lot of data centres built to house all these servers with these very high processing chips inside. And so these data centres are going to be huge consumers of power. It’s not surprising in the US we saw utility stocks actually perform very well in the first quarter and I think that’s in anticipation of greater power consumption just coming out of generative AI and machine learning. So, I think these trends are real. I don’t think these are changing. As I mentioned, some might be more transitory but I think we have several years, at least, of a lot of investment opportunity in the companies behind these trends because I don’t think they’re going away anytime soon.

Bullock: That takes us to the end of our time. I now want to thank Lucas, Jim, and Marc for all of their insights. And finally, if you have any other questions, please do contact your JHI representative.