Global Equities Market Views - January 2024
Bell Asset Management
Specialist global equities manager with a Quality At Reasonable Price (QARP) approach.
Global Market Commentary
For the most part, global equities had a strong start to 2024, with the obvious exception of emerging markets declining by 4.6%. More specifically, U.S. equities posted solid gains, while Europe and Developed Asia posted modest declines. At a sector level, we saw some of the main divergences from 2023 carry into the new year as IT & Communication Services stocks led the market higher while Materials, Real Estate and Utilities lagged. Large Cap leadership extended into 2024, outperforming their SMID Cap peers by 3.1%.
When we looked across the market cap spectrum, we saw a number of the larger global index constituents push higher as the likes of NVIDIA, Netflix, ASML, Novo Nordisk & SAP continued their recent strong runs. Having said that, the recent dominance of the “Magnificent 7” has been showing signs of moderating as fundamentals have stumbled. Most notably, over the last six months Apple & Tesla have lagged the S&P500 Index by 12.3% & 36.4% respectively. These instances are a good reminder that markets are generally good at pricing in deteriorating fundamentals and may favour SMID cap stocks where the consensus outlook for earnings growth for 2024 is around 14%, a growth rate around six percentage points higher than the all-cap MSCI World Index.
As has been the case for much of the last few months, markets have seemingly become obsessed with the timing and magnitude of possible interest rate cuts in the U.S. The recent commentary from the U.S. Federal Reserve and the exceptionally strong jobs report would imply that investors are overly optimistic when it comes to rate cuts. From our perspective, while moderating inflation clearly raises the likelihood of ‘some’ rate relief over the next 12 months, we expect interest rates to remain elevated for some time.
Market Outlook
As global equity markets hit all-time highs, we need to be very conscious of valuation risk in our portfolios. To that end, we would note that while the P/E for the MSCI World Index has appreciated from 15.5x in October 2023 to 17.8x (7% premium to the 10-year average), much of the expansion can be attributed to the large cap growth stocks.
We would also make the point that we still find numerous subsets of the global universe that represent good relative value. As a case in point, the global SMID cap universe still trades at an 11% discount to the broader market and a whopping 57% discount to the much loved Magnificent 7. While emerging markets has been a painful investment destination for the last 10 years, lagging developed markets by 6.3% annually, there does seem to be some ‘selective value’ appearing in those markets.
More broadly, we are constructive on the outlook for equities and expect a more broad-based rally in quality stocks this year (versus the somewhat narrow rally of 2023). The fact that inflation has moderated means that Central Banks now have the freedom to cut rates as needed. Additionally, the employment market has remained strong around the world and especially in the U.S. Overall, from an economic perspective, all indicators are pointing to a ‘soft landing’ and even the potential for GDP growth to improve. While we monitor the overall valuation of the market, the fundamental and macro outlooks do provide reasons to remain optimistic.
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Bell Asset Management Limited (BAM) ABN 84 092 278 647, AFSL 231091 is the responsible entity for the Bell Global Equities Fund, Bell Global Sustainable Fund and the Bell Global Emerging Companies Fund (the Funds). Distribution of the Funds is undertaken by Channel Capital Pty Ltd ACN 162 591 568 AR No. 001274413 (Channel). Neither BAM nor Channel warrant the accuracy, reliability or completeness of the information. This report has been prepared by BAM for information purposes only and does not take into consideration the investment objectives, financial circumstances or needs of any particular recipient – it contains general information only.?Before making any decision in relation to the Funds, you should consider your needs and objectives, consult with a licensed financial adviser and obtain a copy of the product disclosure statement, which is available by calling BAM on 1300 305 476 or visiting www.bellasset.com.au. No representation or warranty, express or implied, is made as to the accuracy, completeness or reasonableness of any assumption contained in this report. Past performance is not necessarily indicative of expected future performance.?BAM has issued a Target Market Determination (TMD) for each Fund discussed in this presentation and each Fund’s TMD is available at www.bellasset.com.au.