Don't bank on the pivot: 3 global stocks to navigate macro uncertainty
Despite the uncertainty following the largest bank failure since the 2008 financial crisis, global equities rose during the first three months of 2023. Index performance was saved by mega-cap tech as the market bets we are on the cusp of the Fed pivot.
Our view at Antipodes is the pivot is coming, but it may not come as quickly as the market predicts.
The bigger question, however, is whether we see a pre-emptive “positive pivot” or a "negative pivot".
A positive pivot would occur where the Fed acknowledges its error in setting policy while relying on backward looking employment data, and cuts rates sooner rather than later and potentially reverses QT.
The negative pivot scenario sees the Fed easing later, while the economy is already contracting.
Our base case is the latter, thus, we would not expect to see markets bottom until the earnings downgrade cycle matures and the Fed is well into the easing cycle.
The outcome may not be what many anticipate
It’s worth keeping in mind that even with a pivot, there’s no guarantee long-term rates will fall given the size of the budget deficit along with the debt ceiling … which is back in the headlines.
The US treasury will issue bonds to fund the deficit, but at the same time we have the Fed adding to supply via QT.
So the bonds will sell, but the question is at what yield this debt will have to be raised, and of course that has ramifications for equity valuations.
And that’s not all that can weigh on equity multiples. Monetary policy acts with a lag, so the full effect of this current tightening will likely only be felt in 2024. We expect to see more pressure on company earnings – which is further bad news for PEs.
So, where to find opportunities in global equities?
In Antipodes' latest podcast episode, Jacob Mitchell and I delve into the state of global stock markets, Fed policy and the complex macro environment as we move into the second quarter of the year.
We also discuss the investment opportunities being presented by the very high multiple dispersion which prevails in markets. This provides investors focussed on valuations the opportunity to build exposure to some very compelling companies, including attractively valued defensives which can outperform choppy markets.
Three of our key portoflio holdings discussed are, Sanofi (EPA: SAN), TotalEnergies (EPA: TTE) & Midea Group (SHE: 000333).
Key times in this episode:
- Can the Fed still engineer a soft landing? 01:00
- The impacts of the banking crisis in the real economy: 05:10
- The disconnect between the top down and bottom up in the US: 11.20
- Why Europe and China are relatively better positioned: 16.30
- Broader portfolio positioning against current macro backdrop: 19:50
- Sanofi: a big cap pharma that’s insensitive to the economic cycle 23:30
- TotalEnergies: conventional energy with a transition angle 27:30
- Midea: an emerging Chinese multinational 32:10
Remember to subscribe to our podcast on Apple Podcasts or Spotify. You can also follow Antipodes on LinkedIn to stay up to date with all our market commentary and team news.
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In almost two decades of investing in equities based in Sydney and Singapore, Alison has worked through various market cycles and navigated major market events. Alison is an investment director at Antipodes and a member of the senior investment team.
Prior to joining Antipodes she worked as an investment analyst with Smith Tan Asset Management in Singapore and a deputy portfolio manager at Kingfisher Investments. From 2004 to 2015, Alison was a senior investment analyst at Platinum Asset Management.
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Alison Savas,
Antipodes
In almost two decades of investing in equities based in Sydney and Singapore, Alison has worked through various market cycles and navigated major market events. Alison is an investment director at Antipodes and a member of the senior investment team.
Prior to joining Antipodes she worked as an investment analyst with Smith Tan Asset Management in Singapore and a deputy portfolio manager at Kingfisher Investments. From 2004 to 2015, Alison was a senior investment analyst at Platinum Asset Management.
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This communication was prepared by Antipodes Partners Limited (ABN 29 602 042 035, AFSL 481 580) (Antipodes). Antipodes believes the information contained in this communication is based on reliable information, no warranty is given as to its accuracy and persons relying on this information do so at their own risk. This communication is for general information only and was prepared for multiple distribution and does not take account of the specific investment objectives of individual recipients and it may not be appropriate in all circumstances. Persons relying on this information should do so in light of their specific investment objectives and financial situations. Any person considering action on the basis of this communication must seek individual advice relevant to their particular circumstances and investment objectives. Subject to any liability which cannot be excluded under the relevant laws, Antipodes disclaim all liability to any person relying on the information contained on this website in respect of any loss or damage (including consequential loss or damage), however caused, which may be suffered or arise directly or indirectly in respect of such information.
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In almost two decades of investing in equities based in Sydney and Singapore, Alison has worked through various market cycles and navigated major market events. Alison is an investment director at Antipodes and a member of the senior investment...
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