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What are the current issues for global equity investors?

Reflecting on the past month, Jeremy Richardson explores;

  1. Shoots of recovery in China and Europe, while the U.S. economy remains robust

  2. Why recent geopolitical tensions are not having a bigger impact on oil prices

  3. Investor expectations in earnings season

Watch time: 3 minutes, 33 seconds

View transcript

Hello, this is Jeremy Richardson from the RBC global equity team. Three things I'd like to cover in this discussion. The first is a tour of geographies. We’ve spoken before about how we're seeing some green shoots of recovery in China and in Europe, and it feels as though this last month that those green shoots have grown a bit.

We've seen, positive GDP, data from China over 5% and European manufacturing data continues to show some signs of modest improvement. In the US on the other hand, the economy still appears to be behaving in a very robust and strong fashion. To such an extent, in fact, that the bond market is now beginning to price in a 20% chance of a 25 basis point increase in interest rates, for the balance of this year. Potentially because of stronger growth will lead to high inflation.

Now that will raise some questions about valuations for investors. But we shouldn't forget that the reason why the bond market is taking this view is that, there is such strong economic growth, and that has to be good news for the outlook for corporate profits. The second thing I'd like to cover is geopolitics and the increasing tensions that we've seen over the last few weeks or so.

And many people are asking, why is it that that hasn't led to a strong, response from the energy complex? Another thing is, when answering that, I think it's important to remember that even before the geopolitical tensions, blew up, we have seen Opec+ trying to curtail the amount of energy supply to the market in order to support prices.

We're also seeing, full stocks of natural gas in Europe. And of course, the US continues to pay a significant net exporter of energy. So, the market for energy, it feels to be incredibly well supplied at the moment. And that may be one of the reasons why there hasn't been a stronger price response as a result to this geopolitical, increasing tensions.

And then the final thing I'd like to cover off is the earnings season, because as I speak to you now, we're just in the very, very start of of a really important period of about two weeks where companies get to report on their Q1 earnings. And I think a lot of investors would be paying very close attention to the level of profits and also management's guidance on what they expect for the balance of this year, given that equity markets have been so strong in the early part of 2024.That strength suggests that expectations for profits have been improving and there must be a question in investors minds as to whether or not management teams will

have seen sufficient of 2024 to countenance an improvement in their own profit guidance to investors for full year profits. And if we don't get that, it may lead to a little bit of volatility in choppiness with an equity markets. Now normally when investors attention returns back onto company fundamentals, that can be quite good news. For stock pickers, profits presents a lot of opportunity.

And for stock pickers who, like ourselves, are focusing on great businesses at attractive valuations, you hope that those better businesses will be able to deliver better results. I hope that's been of interest and I look forward to catching up with you again soon.

 

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