Perhaps the assumption that markets are still anchored by predictable economic policies needs to be challenged. For the first time since the fall of the Berlin Wall, political volatility – once background noise – is potentially reshaping investment risk at a structural level.
Despite authorities taking their foot off the environmental, social and governance pedal and recent volatility in equities and bonds, the benefits of Artificial Intelligence and improved investor transparency are just beginning.
Equity opportunities in a low-rate, low-growth world
(Pictured: Virginie Maisonneuve)
The current low rate environment should be supportive of US stocks but investors need to look for regions, sectors and companies that will benefit from solid fundamentals.
“While bank lending remains constrained, particularly in Europe, good companies – such as Apple recently – are good examples of how companies are using low rates to tap the market for liquidity,” Virginie Maisonneuve, says in the latest, and fourth instalment of the Secular Outlook Series from one of PIMCO’s six new deputy CIOs.
Maisonneuve is also managing director, global head of equities and says that investors should concentrate their search on alpha and stock-picking skills, as opposed to equity beta, in the new environment.
But in order to get this alpha investors will need to focus on super-secular trends like shifting demographics, climate change and a growing middle class in emerging economies.
“Certain industrials in the US, and globally, stand poised to benefit from shifting global dynamics, particularly with regard to new energy, capital expenditure, productivity enhancements, energy efficiency and electricity generation, all of which show positive long-term trends,” she said.
Dividends are not just an Australian theme either and investors should look for companies that can grow them over time.
“Investment strategies focused on dividend growth can also serve an ageing population in search of income in
a low interest rate world. And in an environment where slow growth creates potential bouts of volatility in an otherwise lower volatility world, investors may also benefit from very patient, contrarian stock-picking strategies that also offer capital preservation potential.”
“In addition, we believe strategies that can leverage information on stocks from both long- and short-term perspectives will usually have a competitive advantage.”
