Top Research Picks for August 2023

In the seventh edition of our "Investment Research Digest," we take a look at these and other topics: How to navigate the rally in US growth stocks? Why are emerging market bonds resilient to China’s slowdown? Can innovative companies deliver higher returns?

Navigating the rally in US growth stocks

US growth stocks have experienced a remarkable rally in 2023, bouncing back from a lacklustre performance in 2022. Janus Henderson delves into the potential factors fueling this upswing, the present state of the market, and what the future might hold for this asset category. Read More

“While not yet clearly stretched, sentiment has reset dramatically since late 2022, but there is only so much optimism that markets can hold before fragility starts to set in. This suggests that the rally may become more fragile from here without further catalysts for an even rosier outlook,” says Oliver Blackbourn, Portfolio Manager at Janus Henderson.

Why are emerging market bonds resilient to China’s slowdown?

While China’s economy displays?signs of fragility, its effect on investments in?emerging market (EM)?bonds has proven to be minor. As Pictet Asset Management point out, China’s economic prospects are not as challenging as they seem. Also, other countries like India and Indonesia are seeing improvement in economic growth, largely due to domestic factors and because Beijing is losing out on investments due to geopolitical tensions. Read More

“Prospects for emerging market debt remain strong, with some attractive opportunities to be found within China and many more beyond it,” says Echo Chen, Investment Analyst at Pictet Asset Management.

Innovative companies to deliver higher returns?

Baillie Gifford analyses how investors can capitalise on the current phase of the industrial revolution by picking innovative companies. These are the ones that leverage new technological forces under the current industrial revolution. AI healthcare companies, solar power companies, and the ones in the electric vehicle space are promising investment options. Read More

“We expect enormous demand for things like accelerated computing, AI, drones, clean technology, and biological technology, to name but a few. Today’s industrial revolution is underway, and it is astonishing. As investors, we need to be patient,” opines Hamish Maxwell, Investment Specialist at Baillie Gifford.

Japanese economy - driven by major structural changes

The Japanese economy is going through a period of deep structural changes after its?“lost decades”. Nomura says, there are four main themes – changes in the labour market, software investment, a price-hike culture, and a new age of corporate governance, that would help in redefining Japan’s economy. Read More

“If Japanese companies can dynamically revise prices like European companies have done while adjusting employment practices, we see the potential for a 40% improvement in margins and ROE, which could push the Nikkei 225 up to 45,000,” says Nomura.

Unravelling the ‘rolling’ nature of US recession

Despite the long-anticipated US recession failing to manifest as expected, Capital Group asserts that it has indeed occurred, albeit in an atypical manner. The asset manager suggests that a ‘rolling’ recession has unfolded, wherein distinct sectors of the US economy have encountered downturns at separate intervals. Read More

"This has been Godot’s recession; we’ve all been waiting for it. But because of that fear, many companies started pulling back in anticipation of a downturn. The Fed started raising rates. And now there are fewer imbalances in the economy. So, there are fewer things that can go wrong from here,” says Chris Buchbinder, Equity Portfolio Manager at Capital Group.

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