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Global market predictions from GAM for second half of 2015


Looking to the second half of 2015, GAM’s managers are offering a range of views on the international markets.

For the UK, Andrew Green, Investment Director, GAM writes: “At present, the UK market seems to be taking its cue from developments in the US and the global economy at large. Given the domestic market’s skew towards Basic Materials and Financials, the performance of these sectors could determine whether or not the UK market can forge its own path. For the contrarian investor, these sectors are throwing out interesting opportunities.”

Commenting on Switzerland, Investment Director, Daniel Haeuselmann predicts that the appreciation of the Swiss franc will hurt profit growth of Swiss companies in the second half of the year, and there will be limited profit growth for the franc in 2015. 

“Valuations of the Swiss market are above historical levels,” he says. “We see good support from the low yield environment, but companies need some improvements given the global macro environment.”

Enrico Camera, Investment Director, for Saudi Arabia, comments: “Despite displaying weak earnings trends, both in absolute terms and relative to emerging markets, Saudi Arabia’s market has performed strongly this year. Overall, as we move into the second half of the year, we favour industries outside of energy/materials and financials, given that earnings dynamics for these sectors should remain challenging in the context of low oil prices and in the absence of monetary tightening. These two sectors at the same time represent c.75 per cent of Tadawul’s total market capitalisation, which suggests strong market performance is unlikely to continue for the remainder of the year.”

Moving to South American and Argentina, Tim Love, Investment Director, writes; “Argentina has outperformed the MSCI Emerging Markets Latin America index for the last three years, contrary to expectations. There has been a material shift in politics post the Kirchner era, as elections approach in October. A more liberal capital appreciation should occur as valuations expand from low levels but still remain inexpensive. We are positive regarding the utility sector, agriculture and commodities, and real estate. We are also positive on selective banks.”

Back to Europe and Oliver Maslowski, Investment Director, commenting on Germany comments that at 5.2 per cent, the discount rate – the barometer of a stock market – is still relatively high in Germany compared with rates of 3.8 per cent and 4.3 per cent in the US and Japan respectively.

“These discount rates exclude financial stocks. Assuming a steady decline to 4 per cent in Germany within the next year means that stock returns should be boosted by the change in P/E ratios. In the second half of the year, two major trends are likely to continue. First, the commodities bear market and second the low interest rate environment. We aim to capture these trends by positioning our portfolio overweight consumer discretionary stocks, which should benefit from lower material costs and higher consumer spending. On the other hand, low interest rates favour growth compared to value stocks on a relative basis, which is reflected by an overweight in the IT sector of the portfolio,” he writes. 

In China, Investment Director, Michael Lai, says: “While the slide in China’s mainland stock market has dominated headlines, it should be remembered that the long-term story for the country is one of reform. Actions by the state, despite short-term policy errors such as the one that caused July’s market sell-off, reflect China’s desire to implement financial and structural reforms to boost long-term growth, and these are occurring at a much faster pace than most people could have anticipated.” 

Madhav Bhaktuly, CEO and CIO at New Horizon, manager of the GAM Star India Equity Fund comments on India, writing: “With over 6000 listed companies amid a multitude of sectors, we believe India's low per capita and per household penetration rates across many categories and sectors offer a tremendous opportunity to buy businesses that create value over the long-term. These long-term gains, however, are only available to those who are willing to ignore the short-term, whether it is the monsoon rainfall levels, interest rate increases or politics.” 

Ernst Glanzmann, GAM’s Investment Director for Japan predicts that Japanese companies should benefit as the global economy reaccelerates led by the US and persistently favourable commodity prices. 

He writes: “Moreover, improving domestic macro conditions together with a boost in consumption, led by record levels of inbound tourism, higher wages, and more capital expenditure could lift corporate profits to another historic high. Under such a scenario, Japanese equities remain a preferred investment.”

Finally, in the US, Greg Woodard, portfolio strategist at Manning & Napier and manager of the GAM Star US All Cap Equity Fund writes:

“Regarding the remainder of 2015, we continue to believe it is unlikely that the right mix of circumstances will arise to push the US economy beyond the 2-3 per cent real GDP growth rate pace of the last few years. Lingering elevated levels of debt among U.S. consumers and the lack of a significant increase in wages remain headwinds to more robust levels of economic growth, coupled with a stronger US dollar is also likely to weigh upon exports. Importantly, however, in our view we continue to see little evidence of excess or extremes in the economy that could be construed as precursors to the next recession. We think investors should remain flexible and selective in their approach in order to avoid overvalued areas of the market and focus primarily on businesses that can grow despite muted growth levels in the broader economy.”

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