In this podcast Peter Brooke advises against high conviction investment calls based solely on macro-outlook. Instead, he urges investors to seek opportunities where growth is improving, and prices are reasonable. Looking ahead, a new theme for 2024 emerges: rate cuts, already underway in emerging markets like Brazil, Colombia, and Hungary.
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Peter Brooke 00:01
Good day. I'm Peter Brooke, a Portfolio Manager at the Old Mutual Investment Group. This is Macro Perspective six of 2024, and I want to talk about the world economy. Before I do that, I want to just first apologize for what is a slightly croaky voice. I was overseas for a course and picked up a bit of a chest infection.
Peter Brooke 00:22
Now, last year, our expectation on the world economy was at the very sharp increase in rates, and as they held at higher levels that erode through the excess savings that have built up in Covid and would result in a slowdown in the global economy and a contraction in world earnings. Now, that's sort of happened. Global earnings per share shrank by 6%. Yet markets have performed much better than we expected. And global growth has seen steady upgrades, as the world economy has proved more resilient. That was helped by very strong fiscal expenditure, and also a little bit of industrial activity around the multi-polarization theme that we spoke about ensuring, frenshoring, etc. And recent data has continued to be supportive. We just had the global PMIs or Purchasing Manager Indices coming out. And they were stronger, driven more by the services side than the manufacturing side. And at the same time, the inflation data came in on the low side. So, stronger growth, lower inflation, Goldilocks type data.
Peter Brooke 01:38
Now, as I mentioned, some months back, a new theme for 2024 will be rate cuts. And they have already started in emerging markets. Very recently, Brazil, Colombia, and Hungary have all cut rates, adding to existing cuts, meaning they're well into their rate-cutting cycle. Now, I'm not certain if we balance off the lagged impact of interest rates and at the higher level, whether it can be offset by the rate-cutting cycle and the timing thereof. So, we've got credit conditions remaining tight, money supply subdued, private sector credit extension subdued, the US regional bank crisis is still rumbling along. And that's really been hampered by the commercial real estate issues in America and elsewhere in the world. And China remains mired in deflation. However, on the plus side, export volumes in Korea and Taiwan are up sharply. This is one of the key early indicators that John Orford produces for us in his monthly pack. And the three month rate of change in export volumes is 7.7% up. So, really strong numbers. My conclusion from this is that the macro outlook is a bit uncertain and shouldn't form the basis of high conviction investment calls. Rather, we should look for opportunities where growth is improving, and prices are reasonable. And in that light, I think Korea looks very interesting right now. I hope you enjoyed this perspective. Until next week.