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Global equities: how being balanced fits uncertain times

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This is a sponsored article from PineBridge Investments.

Anik Sen
Global Head of Equities

Rob Hinchliffe, CFA
Portfolio Manager, Head of Global Sector Cluster Research

The market is in constant debate about the durability of inflation and the monetary response. While our conversations with management teams suggest that inflation may have already peaked, August official inflation data spooked the market. That said, the US labour market remains strong, with job openings picking up in August and lay-offs remaining steady. US 2Q22 earnings reports have shown that companies have generally been able to navigate the complex environment well. It appears that pricing power remains robust across most end markets, and supply chain pressures are easing on the margin. However, guidance has remained conservative in view of ongoing uncertainties.

Corporate Profits-to-GDP Ratio Remained High and Margin Protection Is Still Working

Source: Source: U.S. Bureau of Economic Analysis, retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CP, retrieved 19 September 2022. Corporate profits are after tax (without inventory valuation adjustment and capital consumption adjustment). Quarterly, seasonally adjusted data.

Outside the US, China’s July industrial output rose 3.5% YoY, which lagged forecasts but constituted the third consecutive month of acceleration. Zero-COVID policy remains a headwind and is causing an uneven recovery. It is too early to predict the path of the conflict in Ukraine, which has lost some of its recent intensity, but it’s noteworthy that more cargo ships are leaving port due to the grain export deal. We remain of the view that long-term opportunities in global emerging markets are some of the best that we have seen in years. And across global equities, tailwinds such as increased global capex spend offers the potential for attractive investment opportunities over the medium-term in light of the market pull-back.

Alpha for the Same Risk as the Benchmark

In these challenging markets, how can investors achieve above-benchmark returns without exceeding the benchmark’s total risk? The key to investment success, we believe, is having a differentiated portfolio than the benchmark and peers, so as to allow for uncorrelated returns while minimising exposure to unremunerated risks. Benchmarks are top-heavy, and thus may not deliver the desired diversification benefits. For example, the top 10 constituents represent close to 28% of the S&P 500 Index and 16.29% of the MSCI ACWI.1

We aim to consistently generate alpha across all market conditions with a highly active, differentiated, style-neutral portfolio that benefits from investment idea generation through effective collaboration across our global equities team. We focus on identifying mispriced positive company change, constructing our portfolio to keep risk at a level similar to the benchmark with a low turnover.

While the direction of the global economy continues to be uncertain, we remain focused on long-running themes that we believe will bring sustained alpha for years to come such as corporate transformation, global capex investment, technology enablers, and global affluence. The key is to find where significant changes are taking place, and then to identify the stocks that benefit most from them and can potentially generate alpha from the mispricing of this corporate change over time.

Taking a global, multi-cap approach allows the managers to consider how a trend seen in one part of the world might benefit companies elsewhere. The market pull-back presented us with opportunities to invest in these kind of companies, which are typically richly valued, and we believe there will be more such opportunities as markets remain in flux.

To learn more about PineBridge’s global equity offerings, visit www.pinebridge.com.

1Source: S&P Dow Jones Indices and MSCI as of 31 August 2022. Indexes used are in USD.

All investments involve risk, including the loss of principal amount invested. Past performance is not indicative of future results. Any views express represent the opinion of the manager and are subject to change. We are not soliciting or recommending any action based on this material. In Hong Kong, this document is issued by PineBridge Investments Asia Limited. This document has not been reviewed by the Securities and Futures Commission (SFC). Investors should note that the website www.pinebridge.com and any other website referred to in this document have not been reviewed by the SFC and may contain information of funds not authorised by the SFC. In Singapore, this document is issued by PineBridge Investments Singapore Limited (Company Reg. No. 199602054E), licensed and regulated by the Monetary Authority of Singapore (MAS). This advertisement or publication has not been reviewed by the MAS. Investors should note that the website www.pinebridge.com and any other website (including any contents therein) referred to in this document have not been reviewed or endorsed by the MAS.

This is a sponsored article from PineBridge Investments.