Markets have remained range-bound in the past few weeks as investors again try to judge the direction of monetary policies, economic growth, and the inflation trajectory. The uncertainty is further enhanced by the geopolitical consequences of the Israel-Hamas war, according to Amundi Asset Management’s November global investment outlook.
Nevertheless, the French money manager sees opportunities in emerging markets to provide attractive returns, but notes that investors should favour “best-in-class” companies and countries that can deliver productivity growth.
Amundi is neutral on China equities, believing that government’s recent actions are meant to soften the country’s economic slowdown, but it sees value in India and Brazil, and other Latin American countries.
“We are mildly constructive amid the emerging market macro backdrop, valuations and supportive earnings expectations, but see some geopolitical risks and potential slowdown risks in developed markets,” said Amundi. Their preferences are Brazil and India.
“The former is showing resilience in the face of global headwinds and has already started its easing cycle; the latter offers a large and fast-growing economy and internal demand.”
Among sectors, Amundi favours consumer discretionary and real estate, “but with divergences among countries”.
Nevertheless, macroeconomic prospects are hardly supportive for equities in general.
Amundi continues to expect a mild US recession in the first half of 2024, with “higher-for-longer” interest rates and tight financial conditions.
Moreover, there is ambiguity on monetary policy. There are expectations of a hawkish pause, as rise in yields has led to additional tightening and central banks may put further hikes on hold. Yet, the Middle East conflict raises inflation concerns should its escalation cause oil supply reduction or price rises.
In addition, fiscal capacities are constrained in the US and Europe. “Looking ahead, the fiscal side won’t be able to completely offset weakness on the consumer side, which is already coming under pressure,” said Amundi.
As a result, Amundi is cautious on US equities, particularly mega-caps, and European equities, while neutral on Japan.
“Markets are moving from corporate rhetoric to concrete impacts on bottom lines,” said Amundi.