In 2020-21 the future orientation, the lack of sensitivity to valuations even if high and the focus on the US market worked. In the post-pandemic context, on the contrary, a focus on company fundamentals will be needed with attention to valuations and moving to markets outside the US, he says Marco Pirondini Head of Equities US Portfolio Manager of Amundi Asset Management.
Labor, energy, defense and China weigh on US inflation
Inflation in the US will die hard and for this reason it is necessary to immediately put a hand on the portfolio strategy, especially by active managers who will be able to enjoy good performances.
There are too many elements that blow on the brazier of US prices, says Pirondini and explains them.
It starts from job market USA: The strong economic recovery together with early retirements during the pandemic and an aging population have exposed a problem of labor shortage in the United States, aggravating the wage spiral.
Also the spending on energy security and defense they will generate inflation, continues Pirondini, and finally we will have to wait for a change of scenario also from the China which until now brought deflation, exporting cheap goods: China's working-age population is now at its peak, and again the contraction of the workforce will translate into higher export prices.
At the base of everything then there is the monetary policy in recent years. Forty years have passed since the Great Inflation which raged from 1965 to 1982 and which rose to 13,5% in the United States, recalls Pirondini. According to Michael Bryan of the Federal Reserve Bank of Atlanta, it was “the macroeconomic event of the second half of the XNUMXth century that left an indelible mark … there were four economic recessions, two major energy crises and the unprecedented implementation of wage and price controls. The origins of the Great Inflation can be traced back to Federal Reserve policies which, similar to those of today, supported excessive growth in the money supply, says Pirondini
Now we're changing course: from growth to value stocks
In the space of a few months, the changing interest rate environment has led US investors to focus on aspects they had more or less ignored in recent years: the , assessments and international markets.
During the pandemic technology stocks benefited from the stay-at-home theme. Over time, but now “markets should refocus on profitability and the prices they pay for those earnings”
Some social networking companies have had stellar results because people were keeping in touch mostly through social media in a time when they were spending their lives at home. Investors were willing to look beyond short-term fundamentals (lack of significant revenues and earnings) and focus on future potential. Interest rates were on the decline, further supporting gains from long-maturity assets that benefited from the low cost of capital.
But then the economic recovery, accompanied by a sharp rise in interest rates, made short-dated securities (companies that earn money) more attractive and led to a avoidance of longer-dated assets.
In this context we believe that investors can reward companies based on theirs current fundamentals rather than their earning potential in the distant future.
"Valuations of long-dated growth stocks that are highly cash flow dependent are hurt by rising interest rates and consequently their cost of capital."
Instead, the segment of the stock market that presents the most attractive valuations is that of Value stocks which are currently traded at a P/E discount compared to Growth stocks.
It also becomes important evaluation. “The shift from growth to value stocks (particularly high-quality, less cyclical ones) should be supported by high growth valuation premia, a slight upward repricing of core yields and rising inflation.”
Finally, if these conditions persist, the composition of the international indices which are weighted more towards value sectors such as financials and less towards growth sectors such as information technology – could help them outperform US markets.
“We also believe that the coming years will likely be the best time in fifteen years to invest with i active managers”, says Pirondini referring to Sgr, Sicav and Sicaf.
Merger of Lyxor AM and Lyxor international AM into Amundi AM
Amundi announced the merger of Lyxor Asset Management and Lyxor
International Asset Management in Amundi Asset Management from 1 June 2022.
On this occasion, Lionel Paquin is appointed Deputy Director of the Real Assets business line. Lionel Paquin is a member of the Amundi Executive Committee.
Edouard Auché is appointed Head of Transversal and Support Functions within Operations,
Services and Technology Division.
Last January 4 when the closing of the acquisition of Lyxor, Arnaud was announced
Llinas had been named head of the ETF, Indexing & Smart Beta business line and Nathanaël Benzaken
