Amundi: Investors should focus on quality and sustainability of earnings and dividends

Amundi: Investors should focus on quality and sustainability of earnings and dividends

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Vincent Mortier, Group Chief Investment Officer at Amundi comments on the main factors affecting the global economic outlook in Amundi’s Global Investment Views for November.

  • Ambiguity on monetary policy, expectations of a hawkish pause: Rise in yields have led to additional tightening and central banks may pause now. Success on inflation will eventually determine their policy. The Middle East conflict raises inflation uncertainty (oil prices).
  • Fiscal capacities are constrained in the US and Europe. Looking ahead, the fiscal side won’t be able to completely offset weakness on the consumer side, which is already coming under pressure.
  • Savings and labour markets. Until now, excess savings and tight labour markets supported consumption. But if there are layoffs and wage growth falls, consumption would be affected.
  • Corporate weakening. US bankruptcies are rising. Pressures can also be seen on small businesses which are a key component of the economy and rely on banks for their funding requirements.
  • China’s structural deleveraging indicates that the growth slowdown will be driven by the decline in capital input. We do not expect a policy bazooka but incremental measures to stablise the economy.

In this environment of restrictive financial conditions, investors should build balanced portfolios, with a focus on quality and sustainability of earnings and dividends.

With an overall cautious view, Amundi sees opportunities in the following:

  • Cross asset: The economic backdrop and valuations favour a positive stance on duration, with some pressure from inflation.
  • Government bonds offer strong long-term prospects after a sharp upward move in yields. Amid risks of an economic slowdown, we think bonds will act as a diversifier. But short term, the situation is tricky, depending on incoming data, leading us to be agile.
  • We are cautious on the US, particularly megacaps, and European equities; neutral on Japan. Markets are moving from corporate rhetoric to concrete impacts on bottom lines. While a growth slowdown makes us cautious on cyclicality, there is a need to distinguish within cyclicality: businesses that would benefit from secular themes (electrification, near shoring) present opportunities. Value vs Growth outperformance is a long-term phenomenon, but we like names with pricing power, intellectual property, low cyclicality.
  • EM offer attractive returns, but there is a need to show selectivity in favour of best-in-class companies and countries that can deliver productivity growth. HC and corporate debt offer good carry and within these we like HY but focus on quality. On LC debt, a strong USD makes us selective. In equities, we are neutral on China and believe government actions are meant to soften the slowdown. We see value in India and Brazil, and other Latin American countries.