17 OCT, 2023
By Constanza Ramos
The arrival of the end of the year, rather than bringing clarity, has exacerbated uncertainty of late, making forecasting how 2023 will end and 2024 will begin a challenging task. However, the outlook for next year appears to be sharper: more pronounced recession risks in the US and Europe at the end of the first quarter, and slower global growth, among other things.
Benjamin Melman, Global CIO at Edmond de Rothschild AM shared his view with us.
In stark contrast with the US, China and Europe have seen a marked economic downturn. Growth in the US is exceeding even the most optimistic expectations but China is facing increasing signs of deflation and Europe is, at the very least, moving towards contraction territory.
Europe will have to cope with China’s extremely weak growth rates. Growth will only bottom out when Beijing manages to turn the property market around. So far it has failed. The outlook for Europe is not yet certain but the zone will need to be closely watched.
With this, there is increased uncertainty over European earnings prospects, but it would be dangerous to draw hasty conclusions. We will wait for more information before assessing these new risks. However, in the meantime, the available data makes us prefer the US to European equities.
We have maintained our exposure to Chinese equities because there is pressure on Beijing to go for more stimulus, valuations are cheap and investors are underweight in China. There is significant rebound potential, but the investment case is still speculative.
In today's more uncertain and fragile environment, we are increasing exposure to healthcare. The sector is only marginally sensitive to today's economic issues. What's more, it has underperformed significantly since the beginning of 2023.