In a decisive electoral year for the US and the world markets due to what will happen and the actions of the Federal Reserve(Fed) the big players are recalculating the game and the bets. In this sense, the largest investment bank in the world, Goldman Sachschanged his cautious posture with the variable income to a more risky one, and the same recognized the largest fund in the world, BlackRockwhich in this regard considers emerging markets attractive.
In the case of Goldman The better prospects for economic growth and recovery of industrial activity were the triggers for the change of mood. The bank’s strategists expect growth to become a more important driver of risk appetite and correlations between equities and bonds to become more negative in 2024.
While BlackRock He has now made no secret of his preference for assets from emerging countries because risk appetite continues to maintain an optimistic trend. He explains that as the US economy grows faster than expected, inflation eases and the Fed prepares to cut interest rates, all this is a cocktail for greater stimulus in emerging markets, given the optimism of the market towards risk assets.
Goldmanfor his part, considers that the perspective of a monetary relaxation The Fed and the rest of the central banks would support the price of stocks, even though easing cycles have historically been favorable for risk assets, because they believe that the markets have already negotiated much of the rate relief.
Of course, the US bank also considers the growth potential of global profits, which remains relatively moderate due to lower revenue growth and minimal improvement in margins. However, remember that global economic growth creates upside risks to earnings growth. It’s just that while stocks have so far digested rising bond yields with better growth well, there is still the risk of a good data being bad news scenario.
The perspectives for emerging
In this context, Goldman adjusted upward the S&P 500 estimate to 5,200 points at the end of the year after breaking the 5,000 mark for the first time in history. They expect strong global GDP growth and a slightly weaker dollar to support earnings per share, while lower rates and oil prices will offset. The bank is betting on technology and large-cap stocks, especially the so-called Magnificent 7, as the big drivers of S&P 500 profits in 2024.
While the fund led by Larry Fink He believes robust US economic activity has eased investor concerns about a recession, translating into a boon for emerging markets.
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AFP
The strategists point out BlackRock That as markets priced in the Fed’s sharp rate cuts, US 10-year Treasury yields fell from their highs near 5%, helping to narrow the gap between Treasury yields. US Treasuries and emerging market hard currency debt yields.
Therefore, they will overweight in their portfolio emerging market debt in hard currency, generally issued in dollars. For them, it is an attractive relative value that is protected from the weakness of their currencies as emerging market central banks reduce rates. So they are betting that the outlook for emerging market assets is favorable as market sentiment remains positive.
However, it recommends selectivity since they consider that selection is key due to the divergent performance of the countries. They see, for example, that there are major structural changes that create specific opportunities through the different mega-forces that they monitor. Political fragmentation is one of these mega-forces that comes into action as geopolitical blocs harden and economic competition increases.
There are divergences between emerging markets for investors
In this sense, there are connecting countries like Mexico that increasingly act as intermediate trade partners between blocks, which will mean that Mexican values will benefit and must be taken into account by investors. Likewise, demographic divergence, another of the mega-forces, will favor many emerging companies that have younger and growing populations compared to the aging societies of Europe or the US. For example, India, where its ecosystem of new companies and Its software companies with a global presence make it a promising center for artificial intelligence (AI). Both digital disruption and AI are another of the mega-forces that will be a key driver of corporate profits, for BlackRock.
They note that these factors support the momentum of Indian stocks, even as 12-month forward valuations are near their highest levels in the last 20 years, while those of Mexico are closer to the 20-year average.
Another element they consider is that these mega-forces favor investment areas such as infrastructure, so they believe that closing the financial gap offers opportunities, but will require public sector reforms and private sector innovation.
Source: Ambito
