Dear Investors,
Here you can find other Macro articles:
- How to view the US Inflation regime in 2024 (Macro Update)
- Clear Market Expectations trends in 2024 (Macro Update)
- How to approach the Financial Markets in 2024 (US presidential election year)
The real point is between Nations Fragmentation – BlackRock
The point is the geopolitical fragmentation
Geopolitical fragmentation is one of the reasons of persistent inflation pressures – and policy rates staying above prepandemic levels.
Supply chains are becoming longer and more complex as “connector” countries like Mexico and Vietnam increasingly act as intermediate trading partners between different geopolitical blocs.
Such countries may stand to benefit from competition between blocs, yet significant investment will be needed in areas like critical infrastructure for benefits to fully materialize.
Risk momentum
On the risks we have Gulf tensions rating in December given the ongoing Israel Hamas war.
The risk of escalation is high, with attacks by Iranian-backed groups on the rise.
The disruption of Red Sea shipping aiming to pass through the Suez Canal shows how the conflict can expand to hamper supply chains and drive up production costs, in this case via rising shipping costs.
S.-China strategic competition risk rating at a high level.
The November meeting between the U.S. and Chinese presidents has helped set a more positive tone for relations and expanded communications in the near term. But Taiwan remains a significant flashpoint, as the recent election shows.
Investors conviction
BlackRock sees inflation staying closer to 3% in the new regime than policy targets, making Inflation-linked bonds one of their strongest views on a strategic horizon.
BlackRock continues to prefer short-term bonds over long term. That’s due to more uncertain and volatile inflation, heightened bond market volatility and weaker investor demand.
And finally BlackRock expects deeper fragmentation, heightened competition and less cooperation between major nations in 2024.
Japan: improving governance and profitability – Franklin Templeton
As long-term investors focused on valuation, Templeton seeks to avoid areas of the market that thinks are expensive and where believes investors are overestimating long-term earnings power
Japan remains an under-owned equity market globally
Trading at a 14% P/E discount to the global market and a 29% discount to US equities.
On a P/B basis, the numbers are even more compelling: a 50% discount to global equities and 69% discount to the US market.
Additionally, corporate balance sheets are healthy, with 50% of listed companies in net cash positions with scope for increased capital expenditures and capital return.
Japan opportunities
Japan currently offers greater opportunities, particularly given the scarcity of growth as we enter 2024.
Many Japanese stocks are benefiting from the idiosyncratic trends of improving governance and profitability.
The exit from Japan’s long-standing deflationary paradigm should be positive for Japanese economic growth and the stock market.
After three decades, Japan appears to be potentially making a leap into a healthier regime of stable growth and manageable inflation.
Investing in 2024?
Global economy continues to create opportunities for those willing to think differently.
Sir John Templeton noted that “Investment management requires clear thinking about a multitude of influences and farsighted analysis of earnings prospects for each individual company.