The world's three largest asset management companies judge the global economic trend How do they view Chinese assets?

Entering the fourth quarter, how will the global economy play out? of investors should rationally allocate global assets? What is the outlook for China's economy and market? In this regard, Invesco, Wellington Asset Management and Aberdeen, the three global asset management giants, shared their latest research and judgment. The three companies have approximately $1.8 trillion, $1.2 trillion and £505.9 billion in assets under management globally, respectively.

The three institutions believe that global inflation is basically under control, and the risk of a "hard landing" of the economy is low. China is undergoing active structural adjustments, which are good for economic growth and market performance in the medium to long term. In the short term, more details need to be finalized to confirm the long-term turning point in market sentiment and valuations.

Can the global economy have a soft landing?

Aberdeen expects the global economy to achieve a "soft landing", and the global interest rate cut cycle may continue.

Peter Branner, Chief Investment Officer at Aberdeen, pointed out that global inflation risks are currently affected by a number of factors, including a sharp rise in oil prices and global supply chain disruptions due to heightened tensions in the Middle East.

Aberdeen pointed out that a series of data showed that United States economic growth is slowing, and more rate-sensitive sectors such as manufacturing and real estate are gradually struggling, and fiscal support is weakening. This slowdown is likely to evolve into a more damaging economic contraction, with the global cycle of interest rate cuts continuing with a relatively low equilibrium rate and nominal interest rates between 2%~3%.

Nanette Abuhoff Jacobson, global investment and multi-asset strategist at Wellington Investment Management, believes that the risk of a "hard landing" for the global economy is low and inflation is largely under control, so companies in developed markets are on track for strong earnings growth. Following interest rate cuts by the Federal Reserve and the People's Bank of China, most central banks are expected to ease monetary policy over the next 12 months.

Kristina Hooper, chief global market strategist at Invesco, said that overall, the United States economy is in good shape and is on track for a soft landing. Initial earnings show that United States economic growth remains resilient, with S&P 500 earnings expected to grow by about 4.1% in the third quarter.

Looking ahead, Kristina Hooper said that while a series of recent economic data has performed well, it is necessary to pay attention to the existence of cracks in the United States economy, the core of which may be the weakening of the United States labor market. "The number of initial jobless claims for United States released on October 10 has soared to its highest level in more than a year, and I will be more attentive to signs of weakness in the labor market, which is key to keeping United States consumption healthy and the United States economy healthy."

How to view Chinese assets

The three asset management giants are highly concerned about China's recent policy "combination punch", believing that this move will be good for China's economy and market in the medium and long term.

Kristina Hooper said that China's Ministry of Finance revealed more details at the press conference on the use of sectoral balance sheets to support long-term economic growth plans. Although the exact size of the new stimulus measures has not yet been announced, the plan mentions that it will support local balance sheets by increasing government debt issuance, replenish the capital of state-owned banks, boost the real estate market, and provide financial subsidies to those in need. It can be seen that through comprehensive measures, China is undergoing active structural adjustment, which is good for economic growth and market performance in the medium and long term.

According to the latest data, China's GDP grew by 4.6% year-on-year in the third quarter, higher than market expectations of 4.5%.

In this regard, Zhao Yaoting, global market strategist at Invesco Asia Pacific (excluding Japan), said that although economic growth slowed in the second quarter, thanks to the recent stimulus measures, China's economy has re-accelerated since the third quarter, and China's GDP growth is expected to exceed the target of 5.0%.

Wellington Investment Management believes that the recent stimulus measures introduced by the Chinese government have had a positive effect on liquidity and market sentiment, and more details need to be finalized to confirm the long-term turning point in market sentiment and valuation.

Aberdeen noted that there has been a significant change in the degree of policy easing in China, which could lead to a repricing of China's stock market. But sustained support policies are still needed to offset structural headwinds in the property market.

How are global equities allocated?

Wellington Investment Management maintains a moderately overweight view on global equities. Nanette Abuhoff Jacobson said: "Despite the increase in market volatility in the last quarter, we remain confident in the resilience of the company and global economic fundamentals. With the risk of a 'hard landing' of the economy low and inflation largely under control, companies in developed markets are poised for stronger earnings growth. ”

Jacobson said the U.S. stock market performed strongly after the Federal Reserve announced a rate cut in September. Looking at traditional valuation indicators, United States equities are overvalued. Out of an abundance of caution, a neutral view on United States equities. However, given the potential for lower interest rates and long-term earnings growth, we believe the US equity index is relatively close to fair value. Moreover, the growth of productivity far outweighs the increase in unit labor costs, which has led to the improvement of the competitiveness of enterprises and the expansion of corporate profit margins, which has provided support for their profitability.

Kristina Hooper noted that S&P 500 constituents have outperformed expectations over the past few quarters. In 37 of the past 40 quarters, the S&P 500 has grown faster than expected in real earnings. FactSet Research expects year-over-year earnings growth to be around 7% after S&P 500 companies report their actual earnings, far exceeding current estimates of 4.1%.

Kristina Hooper believes that despite the earnings of listed companies beating expectations, it provides support for stock prices. However, there are significant differences between sectors, with earnings growth expectations for the technology sector reaching 14.9% and negative earnings growth expectations for the materials and energy sectors.

According to Aberdeen, the recent earnings season has shown a positive correction in the economy, with earnings growth extending to cyclical sectors. While United States equities are highly valued, the high profit margins, high free cash flow and strong balance sheets of technology stocks keep them from repeating past bubble periods.

Regarding Japan equities, Wellington Investment Management said valuations of Japan equities appear to be more attractive after the volatility in August and are now re-bullish on Japan equities. Nanette Abuhoff Jacobson said: "The volatility of the Japan stock market is mainly caused by dynamic changes in technical analysis related to investment strategies and carry trades, rather than weak fundamentals. In addition, the structural fundamentals of Japan equities – including an improving macro backdrop, corporate reforms and increased cash returns through buybacks – remain largely solid, with room for further rerating. ”

Will gold hit new highs?

Recently, the spot gold price hit a record high of $2,700 per ounce for the first time. Since the beginning of this year, the price of gold has risen by more than 30%.

As for the future trend of gold, Wellington Investment Management believes that the surge in gold may continue.

Nanette Abuhoff Jacobson said: "We maintain a modest overweight to commodities. In the context of heightened geopolitical risks, investing in gold and oil may be an effective way to diversify risk. Looking ahead to next year, gold prices will continue to be supported by policy rate cuts. Central bank purchases of gold remain strong and retail gold demand in China and India is expected to increase, spurred by tax incentives. ”

What are the key risks to be prevented?

Wellington Investment Management believes that the main risks include the volatility associated with the United States election, wider turmoil in the Middle East, and soaring inflation.

Nanette Abuhoff Jacobson said that the resumption of the acceleration of core inflation will cause central banks to adjust the current expected interest rate path, and earnings on supercap stocks may unexpectedly decline. "We are closely monitoring the geopolitical conflict in the Middle East, and if the conflict escalates, it could push up oil prices and lead to supply chain frictions, which will increase macro uncertainty."

According to Peter Branner, geopolitical uncertainty is the main risk factor, including a further escalation of the conflict in the Middle East, leading to a sharp spike in oil prices and geopolitical risk premiums, and the risk of a United States-led recession. Whoever ends up in the White House, the bigger risk to markets in the medium term is a recession rather than inflation.

Aberdeen believes that the United States election is a major risk to the global economy, and trade and fiscal policies may trigger inflation. At present, the gap between the expectations of the two main candidates in the United States presidential election is very small, and the probability of Trump winning is 50%. If Trump wins, it will mean higher interest rates, higher inflation, a stronger dollar, and a vague impact on the stock market; Portfolios need to consider and manage these risks.

Aberdeen said that the dollar should be strategically increased before the United States election. Under the basic assumption of a "soft landing" for the economy, the dollar may depreciate slightly in the medium term. If Trump wins, the dollar could appreciate and hedge against potential losses in other assets.

Source: China Fund News

Editor: Xiaoya