Macro backdrop continues to favour equities
From Advisor to Go Macro Economy Text transcript Welcome to Advisor to Go, brought to you by CIBC Global Asset Management, a podcast bringing advisors the latest financial insights and developments from our subject-matter experts themselves. * * * Eric Morin, global head of research, CIBC Global Asset Management * * * Where do we see the most compelling investment opportunities in today’s environment? We think stocks will continue to outperform. And we keep our tactical recommendation of a slight overweight equities versus fixed income. That recommendation is for all major regions. And we do expect also a leadership rotation. Overall, this view is underpinned by several points. First, we do think that global growth will accelerate. It will move back above 3%, which is close to potential. We do think that oil prices will decline from current levels. We think that oil prices will decline by $20 to $30, and will descend to US$70 for Brent in 12 months. So we think oil prices will decline. We also still think that central banks will provide limited hikes. So, yes, the direction of travel is higher policy rates. But we think that the amount of hikes that will be delivered won’t be enough to materially hurt risk assets. We are also in an environment where we think that the global investment tailwinds remain strong and inelastic. That is related to the AI theme, defence theme, and we think that the global tech cycle is well and alive. This is something that should provide support to risk assets via several channels. For the U.S., the investment tailwind is compatible with productivity remaining higher than usual. And historically, this is something that has been associated with outperformance of the S&P 500. For emerging market, that’s also positive because the global tech cycle is positive for Asia, but also for Latin America, for example, and all of the countries that are providing inputs into the tech supply chain. Investment tailwind is another bucket that will support, we believe, risk assets. And, also, we do see limited downside on government bond yields, and that increases the relative attractiveness of equities versus bonds over a tactical horizon, relative to a strategic asset allocation. We do see that there will be a broadening, a leadership rotation. And, also, I want to point out that we do believe that global growth will become a little bit more synchronized. That will support equity markets outside the U.S. That’s why we keep our tactical overweight equities versus bonds. * * * Has the oil shock played out as we have expected since May? Or has our growth outlook changed? Yes, the growth outlook has changed. In fact, the oil outlook has changed. We do see the terminal value for Brent at US$70 in 12 months. Previously, we had assumed US$90. There’s two reasons why we have revised down. The first reason is because of the fact that energy producers have been rerouting their oil shipping outside the Strait of Hormuz at a pace that has surprised us to the upside. This is something that will bring downside pressure on oil prices. So this is a positive development. ...