Macro Matters July 2022

(Source: Merlea Macro Matters)

Summary

Concerns over stagflation risks have hit both bond and equity markets, creating a double whammy in portfolios. The inflation spike has forced central banks to embark on a tightening path, and bonds have sold off sharply as a result. Equities too were hit by the policy tightening, by concerns that inflation would eat into margins, and by the slowing economic cycle. With both bonds and equities down, there were few areas to shelter, but we believe the investment environment should gradually start to improve.

Further potential downside for bond market is getting more limited because they already price in more rate hikes than we expect to see in the US, UK, and Eurozone. If inflation starts to gradually decline and economic growth slows some central banks could hike less than markets now price in. Therefore, we are less underweight on bonds than at the start of the year and could add to duration exposure in coming months. On the growth side, the global momentum is clearly slowing, but the earnings season has shown that many quality companies still manage to achieve solid profit growth despite the cost challenges. The fact that the US and ASEAN countries are experiencing resilient growth while Europe is slowing should help keep the world economy away from recession. And we’re hopeful that China’s stimulus will start to boost activity in H2 2022.

We have previously mentioned our strategy to invest in areas of regional resilience (Australia and Asia) and quality businesses with strong market positions, while balancing cyclicals and defensive (e.g., underweight industrials vs overweight consumer staples). Our preferred sectors are Communications Services, Financials, Materials, Energy, Consumer Staples, and Healthcare. A more stable bond market will exert less pressure on stock prices going forward.

While the “cost of living crisis” and weak consumer confidence have dominated newspaper headlines, the story is not so one-sided. Households accumulated significant savings in the pandemic which have at least provided a buffer in recent months. Perhaps more importantly, the labour market is very strong. There are more job vacancies in the US and the UK than unemployed people. Workers are managing to achieve higher pay which has reduced the squeeze on household incomes.

Rapid pay growth is a double-edged sword, however. While it supports household incomes in the face of rising costs, it also signifies an economy that needs to cool to avoid inflation becoming entrenched. The risk is that the economy slows too much, and rather than just a cooling in activity, we see a more meaningful and long-lasting recession. However, we take some comfort from the fact that we do not see the signs of economic excess in housing construction or business investment that have in the past led to multi-year deep recessions.

On a less optimistic note, while the West appears to have moved sustainably towards “living with Covid”, China is having a more difficult time coping with the more highly transmissible Omicron variant. With a lower level of infection-induced immunity, lower vaccine take-up among the elderly and questions over the efficacy of the domestic vaccines, some form of activity restrictions looks likely for some weeks. Given that China accounts for between a third and a half of all global growth, these restrictions have wider economic consequences. Markets may start to look through the weakness though if it becomes clear that policymakers have a medical solution and stimulus plan to restore activity

Bonds

It has been a very difficult bond market to navigate so far this year as none of its segments or sectors have managed to deliver a positive return. The surge in realised and expected inflation in most economies (China being a major exception) and the late but bold hawkish twist from DM central banks, with the US Federal Reserve leading the movement, have been responsible for a drastic policy repricing in rate markets and to some extent, risk assets.

While this sudden change of monetary policy expectations has been detrimental to bond market performance, it has reflated yields, mostly for shorter dated maturities and opened carry trade opportunities at levels not seen since 2010 (e.g., with a yield of 3.8% for US investment grade bonds with 1–5-year maturities). We think investing in short dated bonds and rolling positions when they mature is more attractive than holding long dated bonds. We will reassess this investment strategy, once investors’ worries switch from supply side issues (i.e., inflation) to a slowdown in aggregate demand (i.e., economic growth). At that time, worries about growth could justify longer duration positions, and we could then increase our exposure to global Investment Grade (IG) and a reduce weightings to global High Yield.

In the meantime, we continue to focus on carry opportunities at the short-end of the corporate credit curves (2-4-year maturities), with our neutral weightings on Global HY and Global IG. The former benefits from positive rating migration on the back of falling leverage. Default rates for this year should remain benign compared to their peak in 2020.

Listed Property

Amid rising rates and slowing growth, real estate has been relatively resilient. This is in part because the market had already differentiated between areas with strong and weak fundamentals in 2021. Some areas are benefiting from reduced supply, while others continue to see strong structural demand, and yet others see their leases linked to inflation.

Despite the easing of lockdowns, office utilisation remains significantly below pre-pandemic levels in many cities, particularly in the UK and US. The long-term impact of remote working for overall office space remains highly uncertain but it is reasonable to expect future leasing requirements to be somewhat lower. Despite the high vacancy rates and low ongoing office utilisation, prime office rents have been surprisingly stable or rising over recent quarters. This supposed disconnect reflects the flight to quality of occupiers as the best-in-class space remains in strong demand; vacancy rates for better quality space have been considerably more stable than for the broader market. Moreover, there are signs of future completions slowing due to rising construction costs (materials, labour, debt).

Despite the rapid deterioration in economic sentiment and rapidly rising inflation, there continues to be deep investor demand for real estate. While below the record-breaking final quarter in 2021, investment volumes in Q1 2022 were ahead of pre-pandemic levels in all regions as investors targeted logistics, residential, and prime offices. There is also growing investor demand for specific retail (retail parks) in markets where rents have rebased, occupiers can leverage their online platforms, and the location might support other, potentially higher value uses, such as residential or urban logistics. In many markets, particularly in Europe, rising inflation is captured by leases with annual inflation indexation. During periods of high inflation, such as now, this protects the landlord’s rental income and capital values. Assets with inflation protection have been demand by investors in 2022.

Australian Equities

The sensitivity of the Australian economy to the RBA cash rate is markedly higher than the sensitivity of the US economy to the federal funds rate. Around 60% of Australian mortgages are on floating rate terms with a further 75% of the remaining fixed rate loans set to mature by the end of 2023. Effectively 90% of mortgage borrowers are directly exposed to moves in the RBA cash rate over the next year and a half. The rate affects borrowers and homeowners through multiple channels, including: the cash flow of existing borrowers; the capacity of prospective borrowers to obtain and service new loans; the wealth effect from associated adjustments in house prices; and via confidence effects.

We have probably entered a more mature part of the cycle, with GDP likely continuing to slow from here. This is simply a slowdown from the higher growth phase of the cycle. It does not mean we are experiencing negative economic growth; it just means we are not growing at the same rate as previously. However, investors will have to navigate a period where economic and earnings growth could be vulnerable to downward revisions. Today, expectations are still bearish. Markets have factored in official interest rates of around three to four per cent, with several rate hikes predicted over the next 12 months but there are reasons for some optimism, not least that all of this has already been well and truly priced into equity markets.

Maybe reality might be slightly better? China has start to open, official interest rates may not reach predicted levels (and even if they do, they’re still low by historical standards), we’re learning to live with Covid, and although inflation is higher than normal, that can work in favour of equity markets if it remains at a reasonable level.  An environment when interest rates go up very quickly (current expectations), equity markets do not perform as well as when they are steadily going up, but returns are still more often positive.

Indeed, equities investments can help keep pace with inflation as many businesses benefit from this type of environment. We’re very much taking a Cyclical/Value and Defensive strategy to our portfolios. Commodities (metals, mining, and energy) including stocks like BHP, Rio Tinto, Iluka and WPL. Then there are companies that sell the essentials and have pricing power (consumer staples, healthcare, insurance, financials) and include stocks like Coles, Woolworths, Sonic Healthcare, QBE, and ANZ.

Quality defensives should be able to consistently provide stable earnings growth through a period of slower growth while avoiding down grades.

We are entering a new phase in the economic environment. That change in environment has caused short-term volatility in markets and created some interesting opportunities in individual stocks, but also potentially a great long-term entry point for equity markets. I do believe we will see better returns from commodity businesses as well as businesses that sell essential services and have pricing power. It is still unclear when growth stocks will outperform again and face potential headwinds, such as high interest rates. Betting everything on value/ cyclical stocks continuing to outperform, particularly when global economic growth is in question, is not without its own risks.

So, while the outlook is uncertain and as we go into a slower period for earnings, we believe that having a balance of quality defensives and quality value / cyclical stocks in portfolios makes more sense.

Global markets

America

The US Federal Reserve (Fed) is stuck between the proverbial rock and a hard place. It has to balance between letting inflation run hotter, which could destroy demand and send the economy into a recession, and pushing through rate hikes to tame inflation, which could again send the economy into a recession.The Fed is tightening monetary policy, bringing an end to “easy money” policies; 30-year mortgage rates have climbed from 3% last year to nearly 6% today; inflation is beginning to erode household savings; and inventories of goods are elevated as both pandemic-induced supply shortages and voracious demand ease.

As the first half of the year draws to a close and we head towards ‘intermission’, stock markets have priced in a lot of bad news. The debate continues over the prospects of a recession, but the bears have a lot to prove in the second half.

The markets are clearly idling amidst the uncertainty and ahead of the upcoming reporting season, when we will have a window into corporate earnings and importantly, future guidance over the second half.

Economic data from inventories and sentiment to manufacturing continues to point to a slowing economy, however, the weaker data lends support to the case that the Fed may pivot away from the current hawkish approach in the third quarter, but here inflation is going to be the key. The upcoming June CPI due for release on the 13th July will be the other key focal point for the markets.

Federal Reserve officials played down the risk that the US economy will tip into recession  with New York Fed President John Williams and San Francisco’s Mary Daly both acknowledging they had to cool the hottest inflation in 40 years but insisted that a soft landing was still possible.  Mr Jerome Powell spoke at a forum in Washington  and said that inflation needs to be contained or the US economy will face the risks of a wage price spiral.

Valuations have come down alongside stock prices but at this point in the economic/earnings cycle, the trajectory of earnings matters more than the level of earnings. There is a high correlation between the growth rate of S&P 500 earnings and the appreciation rate of the S&P 500.

 Stocks have priced in a lot of negative news; but another down leg is possible if earnings growth expectations falter from here. Although earnings revisions recently hooked back the longer trend has generally been down, and we expect that to persist (with fits and starts). We are looking for better news on the inflation front before expecting the Fed to consider a breather in terms of rate hikes. We are also looking for stronger market breadth—including a high percentage of stocks moving higher together. In the meantime, this is not a market likely to reward excessive risk-taking.

Europe

The macro backdrop remains extremely uncertain and at the mercy of energy markets, clearly, higher energy prices for an extended period, worsening supply chain bottlenecks, and disruptions to Russian gas deliveries could prove to be headwinds to our economic forecasts. Elevated commodities prices are fuelling inflation and causing central banks to tighten monetary policy, while increasing recession fears. At the same time, Treasury yields have risen to their highest level since 2018 this month, weighing on stock prices.

We are still wary on equities given the very difficult geopolitical and macro backdrop, while share prices have been declining this year, analysts have been reluctant to cut profit forecasts, as first-quarter earnings were reassuring, with most companies beating estimates. Consequently, valuations have fallen, making European stocks look cheap, especially compared with US peers.

The overall bearishness is now being reflected in investors’ positioning. BofA’s May fund manager survey, a net 26% of global investors are underweight European equities, up from 17% last month and the highest level since July 2012. Additionally, 70% of European fund managers now think the region’s equities have peaked for the cycle, up from 41% last month. Encouragingly, some key drivers of inflation, such as elevated freight rates and the prices of used cars are starting to ease. While the short-term outlook might be uncertain, the medium to long term prospects for European equities are more positive, bolstered by its diverse revenue exposure and loose monetary policy relative to other regions.

United Kingdom

The deteriorating environment and record inflation levels are making investors and consumers very cautious amid fears of a potential recession. Consumer and investor confidence is low amid the cost-of-living crisis and the experience of the last two downturns – the 2008 global financial crisis and the Covid pandemic – which were particularly pronounced.

The near-term economic outlook is challenging, but at this stage it does not appear as damaging as the GFC or the Covid pandemic. Corporate and consumer balance sheets are strong, households are less indebted with lower credit card balances, and banks are well capitalised and willing to lend.

We believe market sentiment has recently become overly pessimistic. Cyclicals and mid/small caps, for example, have significantly derated reflecting excessively negative outlooks, and this is presenting attractive investment opportunities. UK equities also remain undervalued compared to global markets and are reasonably valued in absolute terms, as indicated by recent M&A activity.

Japan

Political stability, stringent corporate governance and low valuations have us thinking it’s time to invest in the Japanese market. Despite being the third largest economy in the world by gross domestic product, Japan is an afterthought to many investors. But not having exposure to Japanese equities deprives investors of a market that can provide strong dividend income and relative stability to investors. The economy is recovering. Although the prolonged concern for higher inflation, the slowing global economy, and the bottle neck in the global supply chain weigh on consumers and business sentiment, the economy continues its recovery thanks to improving domestic demand. China is Japan’s top trading partner developments there can influence the prospects for Japanese companies, and we continue to monitor these closely. In the third quarter, authorities in Beijing made significant policy shifts affecting major technology firms and other influential industries, with the aim of enhancing social stability and national security. Against this backdrop, shipments from Japan to China increased by 9.5% year‑on‑year. Chinese demand for Japanese exports remains robust.

The Japanese equity market remains attractively valued, according to several measures. For example, the Japanese equity market trades at a much lower multiple than the US equity market, and a substantial percentage of Japanese equities are trading below book value. The Japanese equity market also looks more attractive than those of Europe and the United States based on earnings yields relative to 10-year bond yields. In addition to more reasonable valuations, many Japanese companies have accumulated large cash reserves and have begun increasing their use of stock buybacks to deploy this capital.

An estimated 40% of the nonfinancial stocks in the Topix Index now carry cash more than 20% of balance sheet equity. One strain on corporate profits could come from rising input prices, particularly when it comes to energy costs. So far, many companies have not passed these on to customers, opting instead to absorb the higher costs themselves, but that won’t be sustainable for long.

However, inflationary pressures generally continue to be much more subdued in Japan than in other regions. The labour shortages being felt in some other markets and sectors are less of a concern in Japan. This is partly down to the success of former Prime Minister Abe’s policies to expand the workforce, especially by increasing the participation of women. It’s also partly due to Japan’s pioneering approach in terms of automating jobs.

Against this backdrop, we believe the prospects for Japanese equities in second half 2022 look favourable. The country is firmly on the path toward social and economic normalisation and has left behind the period of political uncertainty that followed Suga’s resignation. Signs point to policy continuity under Kishida, and the prospect of further economic stimulus has been welcomed by investors.

China

External demand has been robust and Chinese port congestion has eased, which implies a better international trade environment. The US is considering removing some of the tariffs on goods imported from China that were imposed by the Trump government. But there will likely be no removal of tariffs on technology related products produced by China, which will remain a drag on Chinese technology companies. The technology war will be a long-term issue for economic growth. China does not have the technology to manufacture semiconductor equipment for the most advanced semiconductors.

The obstacle comes from the US and its allies that are preventing China from gaining access to this technology. China is trying to get talent from the rest of the world, hoping to create its own advanced technologies, which is a challenging mission.

Since the beginning of the second quarter we have been more optimistic about the investment outlook for China in 2022, especially relative to other emerging and developed markets. The country’s economic growth is being driven by both the policy and liquidity cycles, and we believed that monetary tightening had peaked. As such, we saw improvements in liquidity conditions. Chinese equities are once again in vogue, after months of regulatory crackdowns, deleveraging and stringent virus curbs wiped trillions of dollars off benchmark gauges.

A Bloomberg survey of 19 fund managers and analysts predicts that benchmark stock indexes in China and Hong Kong will post gains of at least 4% by year-end to outperform their global peers. About 70% of those polled plan to maintain or bolster holdings of shares in the mainland and the financial hub in the next three months.

The optimism marks a stunning reversal from March when investors raced to trim exposure to Chinese assets on fears that the nation’s coronavirus lockdowns and the war in Ukraine would dampen economic growth. A recent easing of virus restrictions has propelled the CSI 300 Index to the brink of a bull market, and a loose policy stance has helped local equities defy the recent selloff in global stocks.

The PPI print reflects weakness in factory and retail activity due to lacklustre demand for steel, aluminium, and other key industrial commodities amid Covid restrictions. However, it does mean that the central bank can provide additional stimulus to support the economy, while many other central banks are boxed in by elevated inflation and moderating growth.

The optimism is reflected in the recent bounce in Chinese shares, with the CSI 300 gauge rallying about 19% from an April low after Beijing lifted lockdowns in major cities — a performance that’s among the best in global markets. The authorities cut quarantine times for inbound travellers by half this week and policy makers have also signalled that regulatory crackdown on tech giants will ease as they pivot toward supporting growth.

We expect more fiscal stimulus, most likely in the form of consumption vouchers. Further easing measures should help the under-stress property market stabilise in the second half of the year.

Emerging markets

Latin America outperformed its emerging Asia and EMEA counterparts, as interest rate hikes boosted the region’s currencies. Mexico, Brazil, Chile and Colombia were among the top gainers. Conversely, EMEA (ex-Russia) equities were weakest as the region paused after rallying for most of this year.

While inflation presents severe social and economic challenges, Latin American economies have some inherent advantages. Latin American commodity-exporting countries produce nearly all their domestic fuels needs and are geographically isolated from the conflict in Europe, which should benefit them from increases in the prices of oil, metals, and other commodities.

More than 70% of Latin American exports are commodity-based, including copper, iron ore, corn, soy, and oil; higher commodity prices tend to lead to trade surpluses and stronger currencies. High inflation also boosts nominal GDP and reduces the debt/GDP ratio. Higher tax revenues from commodity producers also swell government coffers. With LatAm central banks generally ahead of the curve regarding inflation expectations, higher interest rates provide a real return/risk premium that makes LatAm relatively more attractive.

Commodities

Commodities continue to run hot because they are in a global short supply. As the world watches oil, nickel, copper, and wheat prices skyrocket, exasperated by the War with Russia-Ukraine, commodities are becoming an excellent hedge against the Fed’s hiking cycle. Going forward, what’s crucial to monitor is the pace at which the Fed raises rates. If they get too aggressive, they could ultimately crater or stifle demand, triggering a recession. For now, if demand exceeds supplies, commodities are an excellent hedge against inflation.

The latest mining boom is edging towards midnight, but leading market observer Lion Selection Group’s (ASX:LSX) Hedley Widdup reckons we could have years to run yet. Historically the boom-and-bust cycle has been bookended by megadeals and investments in expansions, things that can be accompanied by massive leaps in share prices.

Agriculture commodities

Russia’s invasion of Ukraine has heightened the uncertainty over food supply, a global market that was already feeling the effects of COVID-19 and the ongoing impact of climate change.

At this year’s World Economic Forum, the head of the World Trade Organization Ngozi Okonjo-Iweala warned that a food crisis could last two years unless safe corridors are created to move Ukrainian food stocks. Key drivers of food inflation – including unfavourable weather conditions, higher input costs and pandemic-driven disruption – were already in place before Russia’s invasion of Ukraine in February 2022. Economist Yulia Zhestkova says that the shocks are concerning for emerging markets, which are more susceptible to threats on food security. A high proportion of consumer income is spent on food, so even a marginal increase in food inflation might hit households in these regions particularly hard.

Food inflation is being felt in a lot of countries in the CEEMEA region, like Turkey, but also in eastern Europe, in nations including Romania, Poland and Hungary. All of them are enduring meaningful surprises to the upside. We have also seen a significant surge in prices in the big LATAM countries, like Brazil, Argentina, and Mexico.

Gold

Gold remains rangebound within a wide range between $1780 and $1880, with the prospect of rapid interest rate hikes being offset by the worries about recession and, in a worst-case scenario, the risk of stagflation which historically has proven to be supportive for gold. Our long-held bullish view on gold has been strengthened by developments these past few weeks, and we still see the potential for gold hitting a fresh record high during the second half of 2022 as growth slows and inflation continues to remain elevated. For now, however, calm needs to return to silver and other semi-industrial metals, like platinum, before investors will take another look.

WTIS

Even before Russia’s invasion of Ukraine, energy markets had been undersupplied. Energy companies have struggled to increase production amid a lack of accessible wells, and long-term corporate incentives to rebuild inventory have diminished as economies move away from fossil fuels. Consequently, the United States Baker Hughes Rig Count, a key supply measure representing drilling rigs actively exploring for or developing oil or natural gas in the United States, has been slow to recover from pandemic lows.

As the chart above shows, the last time oil prices were above $100/bbl, the United States Baker Hughes Rig Count was at 1,562, well over double its current level of 5331.  We continue to see historically high energy prices because of the economic recovery and the repercussions of Russia’s full-scale invasion of Ukraine although we expect the current upward pressure on energy prices to lessen, high energy prices will likely remain prevalent globally this year and next. Crude oil markets have been extraordinarily bullish for quite some time, and it’s likely that will continue to be the case. Demand for crude oil was going to pick up as China reopened, and of course, there are a lot of concerns about inflation, which is typically seen in the energy markets first.

The EU announced plans to cut its Russian oil imports by 90% by the year’s end. Actual price outcomes will largely depend on the degree to which existing sanctions imposed on Russia, any potential future sanctions, and independent corporate actions affect Russia’s oil production or the sale of Russia’s oil in the global market.

Sector 12 Month Forecast Economic and Political Predictions
AUD 68c-76c

The median forecast from The AFR’s quarterly survey of 33 economists predicts the local currency dollar will appreciate to US76¢ by December

AUD/USD fails to extend the series of higher highs and lows (recently low 0.6869) on the back of US Dollar strength. The Greenback may continue to outperform its Australian counterpart as Philip Lowe acknowledges that “like other countries, we’re having to raise interest rates and there are uncertainties around how that’s going to affect the economy.”
Gold Hold

$US1500-/oz- $US1900/oz

 

The gold market narrative has been driven by the contrasting effects of persistent high inflation and central banks raising interest rates in response. With the US dollar hitting a 20-year high, gold fell to a three-month low on 13 May. The commodity rallied at the start of June, hitting the highest price levels it has seen since 9 May, but dipped in anticipation of a 75-basis-point rate hike by the Federal Reserve.
Commodities BUY

World aluminium demand growth is set to shift up a gear driven by energy transition-related sectors such as transportation and renewable energy from China, the US and Europe.

Prospects for continued recovery in global demand supports a robust outlook for goods exporters for the remainder 2022. Resources, energy, and agricultural exports are predicted to remain strong.  A significant number of commodities will enjoy strong demand growth on a 20-year horizon and can be dubbed the ‘Commodities of the Future’. They are copper, nickel, aluminium, lithium, cobalt, tin, rare earths, metal scrap and green steel.
Property BUY

The A-REIT sector sell-down earlier this year has opened good buying opportunities.

 

Valuations have remained buoyant and there are growing expectations rental collections will rise, and we will see improved visibility of earnings.  Balance sheets generally look good, with the sector’s average gearing levels at 28%, supporting further growth through acquisitions and development. Earnings forecasts have also been positive amid the improving economic backdrop.
Australian Equities BUY

We are entering a new phase in the economic environment. That change has caused short-term volatility in markets and created some interesting opportunities in individual stocks.

We expect it is likely Australia will outperform most Developed Markets this year and next year given strong economic momentum and the nation’s position as a commodity exporter with lower inflation pressures.

The best sectors in this phase include energy, utilities, healthcare, and consumer staples.

Bonds Begin to increase duration

Treasuries are looking better value for investors who are looking for safe haven.

Long dated bond yields both in the US and Australia soared over the past couple of months as the scale of the inflation challenge has become clearer.

We expect Australian 10-year bond yields to consolidate above the 3% mark moving into the second half of the year, before moderating to 2.35% by end 2023.

Cash Rates 2.5%-3.3% Based on the latest RBA predictions, the cash rate in Australia is expected to climb to a peak of 2.5%, with inflation possibly surging to 7% by the end of 2022 and not likely to fall until early in 2023.
Global Markets
America Underweight

 

US equities ended broadly flat in May as fears of a potential recession caused markets to see-saw throughout the month. The breadth of earnings revisions has moved into negative territory, and this could exacerbate the stock market’s losses seen so far this year.
Europe Neutral

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European equities ended May marginally lower in euro terms but rose in the US dollar as the central bank indicated rate hikes. Although valuations remain elevated, Europe is currently trading at a record discount to the US, while stretched valuation gaps within sectors offer continued opportunities for stock pickers.

UK equities closed May higher but deteriorating domestic data is accentuating concerns of a recession. We believe market sentiment has recently become overly pessimistic and UK equities are undervalued compared to global markets and reasonably valued in absolute terms.

Japan Accumulate

The Tokyo stock market is expected to maintain its upward momentum for the remainder of 2022 as a continued rebound in corporate earnings will likely offset concerns of inflation.

Japanese stocks posted modest gains in May, with a weaker yen and lower long term US rates providing support. The economy is expected to rebound in Q2 as the pandemic’s drag on consumer activity wears off. However, there are risks to household spending including from inflation in the cost of food and energy.
Emerging markets Start Buying

 

Emerging markets ended a volatile May marginally higher, amid tightening monetary policy, global growth concerns, inflation fears and the war in Ukraine. Latin American countries are geographically isolated from the conflict in Europe and should benefit from the increase in the price of oil, metals, and other commodities.
China BUY

Valuations for many companies have moved to historical lows and look even more compelling when we compare them to global peers.

The stabilising Covid outbreak in China soothed investor concerns and allowed Asia Pacific ex-Japan equities to recover slightly in May. In contrast to global trends of elevated inflation, China’s monthly PPI declined to 6.4% year-on-year after April’s 8.0%, affording authorities more policy headroom.

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