23.08 Liontrust MA Quarter In Review Q2 Literature (Single) - Flipbook - Page 18
Data also showed that UK GDP remained in positive territory in Q1
and the BoE said it no longer expected a recession lasting throughout
2023 and into Q1 2024. One UK equities fund manager also said
it had been a reassuring Q1 earnings season. He added: “The more
economic sensitive businesses such as the recruiters and consumer
discretionary have seen a slowdown. But then to some degree that
was already reflected in their valuations, so the share price reactions
have been OK in those names. The valuations of those businesses
are interesting for long-term investors who can see through the cycle.”
The UK continues to face the severest inflation challenge among
developed nations, but it is one of the regions to which we are most
favourable for equities, including small caps. It remains a cheap
market despite outperforming other developed regions in 2022.
China’s post-Covid recovery appeared to be losing steam, however.
Data released in Q2 showed manufacturing activity contracting and
the country cut its benchmark lending rates in a move to ease monetary
policy. Six months after reopening after Covid, China still faced issues,
including declining trade activity and a weak property sector. China’s
property sector is still riven with problems, including liquidity issues,
while unemployment, especially among youths, remains high.
Looking across the Channel, our view on continental Europe
continues to improve. In our Q2 TAA Review, we raised our outlook
on European small caps to neutral, in line with our now neutral
view on European equities generally. Concerns over the domestic
economy are abating as Europe continues to progress after the
problems associated with gas supplies from Russia. Arguably, the
region’s equities have been impacted disproportionately now, given
that Europe is home to many multi-national businesses linked to the
global growth story. A European fund manager said: “We have
been taking advantage of the market sell-off by adding to companies
the team has long admired in every aspect except valuation.”
Another fund manager pointed out the risks and challenges of
investing in Asia: “The challenges in the region are sentiment swings
and retail participation, although these can both also represent
opportunities. Some markets in the region are not as institutionalised
as the more developed markets.
A fund manager commented: “China’s growth rate may be slowing
following years of breakneck expansion, but it is forecast to
significantly outperform most developed markets in 2023. Looking at
the short-term, China is the only major economy that is going to grow
meaningfully from a low base this year.”
“China, for example, has very high retail participation, and so
its market can be very sentiment driven from time to time, in both
positive and negative directions. That’s a challenge, but it can also
be an opportunity when things go your way.”
“China’s growth rate may be slowing following years of
breakneck expansion, but it is forecast to significantly
outperform most developed markets in 2023.”
China recovery petering out
We also maintain a positive outlook on Asian and emerging market
equities. Both regions are benefiting from loose monetary policies
and, for some countries, links to commodities. But for Asia, a lot will
depend on how China supports its economy in the coming months.
18 - Liontrust Multi-Asset Funds and Portfolios Quarterly Report: Q2 2023
Time to implement portfolios for the future
While the bigger risk today seems to be that interest rates
will surprise on the upside, fund managers are right to look
beyond the current hiking cycle. Central banks have already
implemented aggressive hikes for an extended period and
the chances are that we are close to terminal rates.
We recognise that inflation has proven to be more stubborn than
expected, but we have yet to see strong evidence pointing to
excessive harm being caused to the economy in the long term. We
believe that now is the time for investors to look for opportunities and
position their pieces on the board for the long term.
