[00:00:44] How did the global strategy fare during the quarter and what opportunities come from the volatile market conditions?
It was an interesting quarter marked by significant events such as a yen carry trade unwind, a change in Democratic presidential candidates, a 50bps rate cut by the Fed, and a busy reporting season. Despite the volatility and market drawdowns, the strategy performed as expected, providing downside protection. This volatility also presented opportunities to invest in stocks we value, taking advantage of market dislocations to strengthen our long-term positions. Overall, it was a good quarter, with the strategy delivering well under challenging conditions.
[00:02:25] The recent market volatility saw the yen carry trade and geopolitical issues. Can you share what investors should be focusing on as we look forward?
Despite the recent yen carry trade unwind causing market volatility, the core economic fundamentals remain unchanged, with expectations of a soft landing and slowing inflation. The interest rate gap between the U.S. and Japan narrowed, affecting lucrative trades and causing money to shift. While interest rates remain in restrictive territory, potential Chinese economic stimulus could reintroduce inflation pressures, impacting interest rate expectations. Geopolitical risks, particularly in the Middle East, are being monitored, but the primary concern is energy markets. China’s stimulus efforts are seen as a more significant factor for energy prices, with the government focusing on managing downside risks to their growth target.
[00:04:42] What impact could the upcoming US election have on financial markets?
Breaking this into two parts: what is fundamentally the best pre-profit outcome in the election and what is priced. If Donald Trump wins the presidency but the Republican Party doesn’t control Congress, it could be good for markets. Trump is pro-growth, but without Congress, he can’t push through radical policies. As president, he cut the corporate tax rate significantly, boosting market valuations. His pro-market stance would benefit the economy as long as he’s constrained by Congress. If Kamala Harris wins the presidency and the Democratic Party controls both the House and Senate, it could have an impact on markets. Harris is more liberal and focused on social issues, which might prioritise helping poorer people over profit growth. Markets have priced in a lot of good news, but a Harris win with Democratic control could lead to some downside volatility
[00:07:10] Can you share some company insights from the last quarter?
We complement our macroeconomic research with insights from companies, including banks, which provide a leading view of the US economy. The results show continued pressure on low-end consumers who have exhausted their Covid-era savings and face high prices due to cumulative inflation. Credit card default rates have stabilised but remain above pre-crisis levels. The middle class is stable but cautious with spending. Retailers also reflect this trend. While there’s pressure at the lower end, the recent rate cut should help alleviate some of this and support a soft landing for the economy.
[00:09:43] What is the outlook for global equities?
Currently, markets have a lot priced in, making it harder to find deeply undervalued opportunities compared to a year or two ago. Despite short-term challenges, global markets offer opportunities for structural growth, especially with advancements in technology and AI. The evolution from Copilot to AI agents highlights the ongoing productivity potential, similar to the early days of the internet. Additionally, the path towards electrification and decarbonisation presents significant opportunities.
Looking ahead, market returns are expected to normalise after a few bumper years. While highly attractive returns may not continue, equity markets should still deliver decent returns. It’s crucial to focus on active asset managers who understand where returns are coming from. Geopolitical risks are being closely monitored to ensure downside protection. Despite these risks, the growth seen in companies, particularly in the hyperscale cloud sector, remains remarkable, with companies like Google showing significant year-on-year growth.
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