May 03, 2019

May 03, 2019 | Investments Insightz


Where to for global growth from here?

While stock market performance so far in 2019 has been stellar – almost a mirror image of the final quarter of 2018 – it has been against a backdrop of slowing economic growth. Global economic growth is slowing in most regions round the world, which means that the pace of corporate profit growth is also under pressure. The slower pace of corporate profit growth (and note that at this stage, it is a slower pace of growth and not negative growth) does create a more challenging outlook for equities overall.


While stock market performance so far in 2019 has been stellar – almost a mirror image of the final quarter of 2018 – it has been against a backdrop of slowing economic growth. Global economic growth is slowing in most regions round the world, which means that the pace of corporate profit growth is also under pressure. The slower pace of corporate profit growth (and note that at this stage, it is a slower pace of growth and not negative growth) does create a more challenging outlook for equities overall.

Central Bank support and expectations of easier monetary policy has certainly been helpful for valuations. Indeed, much of the recovery in equity prices year-to-date has been a function of price-to-earnings multiple expansion, rather than a function of earnings improvement. In fact, the earnings dynamic for corporations has generally been under pressure, particularly given the tougher comparisons to last year’s earnings strength (and in the US, this was further fueled by Trump’s cut to corporate taxes).

Current equity valuations are back to a level that is broadly in line with longer term averages, meaning that overall equity markets are no longer as inexpensive as they were at the start of the year. Also, the current estimated earnings growth for 2019 for the S&P500 in the US weighs in at a measly 2.9%, according to Refinitiv, a global provider of financial markets data.

Does this mean that the outlook for global equities has to be bleak? Not necessarily.

While prospects at the index level appear muted, a look ‘under the bonnet’ shows a somewhat brighter story. Individual companies can still offer attractive opportunities – in a number of different ways.

American Century, manager of the Zurich Investments Global Growth Share Fund and Concentrated Global Growth Fund, is focusing on three areas to identify companies where they believe the fundamentals are strong and improving, but where the share price performance does not fully reflect these factors:

  • Secular rather than cyclical growth; American Century retains a bias for companies that are beneficiaries of long-lasting secular growth drivers. These opportunities are generally independent of the overall swings in macroeconomic cycles;
  • Highly visible revenue base; American Century also prefers businesses that have a relatively high level of revenue visibility, such as companies that provide services under long-term contracts, businesses that are subscription based and those companies that rely on aftermarket sales of consumables;
  • Companies with idiosyncratic growth drivers; American Century continues to invest in companies exhibiting company-specific growth drivers. These drivers may range from new product innovation, restructuring or self-help programs to other market share gain initiatives. All represent varying forms of catalysts that allow for sustained revenue and earnings improvement.

While the return from global equities over the last 6 months to the end of March has been flat at the benchmark level, an active approach that focuses on improving fundamentals at individual companies can deliver more attractive returns.

  3 mths 6 mths 1 year 3 years (pa) 5 years (pa) Since inception (pa)*
Zurich Investments Global Growth Share Fund +16.0% +3.4% 16.1% 15.6% 13.5% 12.8%
MSCI World ex-Australia Index +11.5% -0.9% 12.3% 13.7% 12.8% 11.4%


All data in AUD. Fund performance is presented net of fees. The performance quoted represents past performance. Past performance is not a reliable indicator of future results. *Inception date is 1st September 2009
 

Important information: The content of this publication are the opinions of the writer and is  intended as general information only which does not take into account the personal investment objectives, financial situation or needs of any person. It is dated April 2019, is given in good faith and is derived from sources believed to be accurate as at this date, which may be subject to change. It should not be considered to be a comprehensive statement on any matter and should not be relied on as such.  Past performance is not a reliable indicator of future performance and should be used as a general guide only. Neither Zurich Australia Limited ABN 92 000 010 195 AFSL 232510, nor Zurich Investment Management Limited ABN 56 063 278 400 AFSL 232511 of 5 Blue Street North Sydney NSW 2060, nor any of its related entities, employees or directors (Zurich) give any warranty of reliability or accuracy nor accept any responsibility arising in any way including by reason of negligence for errors and omissions. Zurich recommends investors seek advice from appropriately qualified financial advisers. Zurich and its related entities receive remuneration such as fees, charges and premiums for the financial products which they issue. Details of these payments can be found in the relevant fund Product Disclosure Statement. No part of this document may be reproduced without prior written permission from Zurich. Past performance is not a reliable indicator of future performance. GINN XYY9MQ.00000.SP.03. CSTT-014515-2019

May 03, 2019

A moment with Matthew Drennan

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Lessons from Market History

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Market Update

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May 03, 2019

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The sharp decline in markets in the December quarter of 2018 prompted some commentators to worry that equities were headed for a bear market, technically defined as a fall of 20% from a prior peak. In isolation, periods such as these can be alarming, but history can provide some useful insights and indeed some comfort during periods of market downturns.

May 03, 2019

Applications now open for the 2019 AFA Awards

If you’re ready to join the advice elite, you’re invited to submit an application for either the 2019 AFA Adviser of the Year or 2019 AFA Practice of the Year Award.