23 February 2024
Nvidia’s earnings this week reminded everyone that it doesn’t pay to be too bearish equities as an asset class now. Global indices including the Dax Index in Germany, the Nikkei in Japan and the Sensex in India hit all time highs.
It would be a mistake to think, however, that the rally we have seen in global equity markets since September 2023 has been solely dependent on tech names like Nvidia. There are several other factors at play.
First, Q4 has turned out to be a good earnings quarter in the US. As of two days ago, 396 out of 500 of S&P 500 companies had reported. 78% had beaten earnings by an average of 7.5%. That’s a solid number but most importantly, as Jurrien Trimmer, Director of Global Macro at Fidelity Investments noted, the 600-bps bounce in the expected growth rates is well above the normal expected as this stage of a cycle.
Second, inflation continues to subside. January and February tend to be seasonally strong months for inflation data and the Red Sea conflict caused shipping costs to soar. As JP Morgan noted recently, however, it’s important to take a longer-term view. Shipping costs are 70% lower than they were at their COVID peaks. Labor markets have also normalized and the Fed’s index for real-time rent is going lower at a quick pace.
Third, the progress with inflation is making investors more confident that the Fed will indeed start cutting rates at some point this year. A rate cutting cycle tends to be supportive for stocks, especially growth names.
The good news is it has become much easier to get exposure to concentrated global equities in Australia. Recently, several actively managed global equity funds have listed ETFs in Australia, in unhedged or currency hedged variants, for example:
- Macquarie Walter Scott Active Global Equity (Managed Fund) (MQWS): A focus on quality growth, through a long-term investment lens.
- Claremont Global Fund (Managed Fund) (CGUN) and hedged (CGHE): Claremont Global has a high conviction concentrated portfolio of 10 to 15 companies, long term focus with AUM of over AUD$1bn.
- Talaria Global Equity Fund (Managed Fund) (TLRA) and hedged (TLRH): Talaria Global Equity Fund takes a high conviction, value biased approach to construct a portfolio of high quality, large cap companies from around the globe.
- Aoris International Fund (Managed Fund) (BAOR) and hedged (DAOR): Aoris invests in a single portfolio of 15 highly profitable, market-leading, global businesses to meet its demanding quality, value, and resilience criteria.
For those looking for more broad-based exposure to the global theme, for example:
- VanEck MSCI World ex Australia Quality ETF (QUAL) or hedged (QHAL)
- iShares Global 100 ETF (IOO)
- Global X FANG ETF (FANG)
