Transcript: Come together: Is global economic convergence on the horizon?
Jack Manley of J.P. Morgan Asset Management sees potential for economies to get back in sync in 2024
- Featuring: Jack Manley
- January 9, 2024 January 12, 2024
- 13:01
Jack Manley
Welcome to Soundbites, weekly insights on market trends and investment strategies, brought to you by Investment Executive and powered by Canada Life. For today’s Soundbites, we’re talking about the outlook for equity markets with Jack Manley, executive director and global market strategist with J.P. Morgan Asset Management. We started by asking about those bearish expectations for 2023.
Jack Manley (JM): I think it’s worth taking an inventory of all the things that we thought were going to happen and didn’t happen, and then trying to figure out why those things didn’t happen. One of them is that, at this point this year, we thought the Fed would already have started cutting interest rates, right? Interest rates would have already peaked — call it in the first quarter or so — we would have been looking at the Fed cutting through the end of 2023. And that assumption was predicated on this idea that the U.S. economy was going to be in a recession. We also thought that value equities were going to outperform growth because growth equities don’t do particularly well in a recessionary environment. And we thought that with China emerging from its zero-Covid policy into 2023, there would be this boom in growth out of that region. And none of those things happened. And not only did none of those things happen, the opposite of those things happened. So much of that has to do with idiosyncratic things that have happened this year, a lot of things kind of coming out of left field and shaking up that outlook.
The outlook for 2024
JM: You know, one of the very clear things we see about 2024 is that interest rates are going to move lower. And I don’t think it’s going to happen in the next two or three months, right? But rate cuts are in the pipeline. And that signals, I think, the potential for outperformance out of high-quality intermediate-duration fixed-income instruments. Something that used to be very boring to talk about a couple of years ago now presents maybe the greatest single opportunity over the next 12 months. If rates are falling, that’s good news for growth equity and for the broader equity market. The one concern I have here though, is that, you know, this AI craze, the GLP craze, I don’t think anybody doubts the ability for these things to fundamentally transform our lives. But I would doubt their ability to fundamentally transform our lives tomorrow, or next week or next month. The changes that we are looking for to productivity, are not going to materialize, I don’t think, for another five, 10, 15 years. So, is there the risk that a lot of the equity-market performance recently has pulled forward a lot of those gains? So, the name of the game in 2024 is active management. It’s security selection. Maybe 2024 is a good year. I think it probably will be. My guess? You’re going to have to work a little bit harder for that outperformance next year than you did this year.
The outlook for global equities
JM: The global story is very interesting, because, again, kind of going back to some of our earlier points, a lot of things that we thought were going to happen this year didn’t really materialize, some things that we weren’t necessarily expecting to happen did end up materializing. Japan ended up coming on the scene in a big way in 2023, in a way that I don’t think anybody would have anticipated. I think there’s also room for European growth as we move into 2024, right? China could start to fully recover in earnest, thanks to a lot of government-sponsored policy backdrops. You know, our theme for 2024 is a convergence of global growth, where maybe the U.S. slows down a little bit, maybe Japan slows down a little bit, maybe Europe accelerates, maybe Canada accelerates, maybe China accelerates, this convergence of global growth. And what I think that that suggests is — at least within the developed world — a continued bias towards value and cyclical equities. So I think that 2024, at a global level, has the potential to be a very exciting year on this idea of converging global growth, with value still working in the developed world, and growth still working in the emerging world.
And finally, what investors should keep in mind as we head into 2024.
JM: There are an enormous number of dislocations, things that are not working the way that they are supposed to, right? Whether that is index concentration in U.S. markets, stretched valuations, fixed-income valuations that are as cheap as they’ve been in 20 years, this sort of artificial slowdown in China that looks set to unwind in 2024 — a lot of dislocations teeing up the need for active management. If you are a global investor looking at the landscape right now, you need to strike while the iron’s hot because these gaps close very quickly. These dislocations go away very quickly. They are not permanent. They are very much temporary. So if you’re going to extend duration a little bit, do it now. If you are going to take a value-centric bet, do it now. Because three or four years from now, I think, this landscape is going to look very, very different and a lot of these opportunities that we haven’t seen in decades are once more going to kind of fade back into obscurity.
Well, those are today’s Soundbites, brought you by Investment Executive and powered by Canada Life. Our thanks again to Jack Manley of J.P. Morgan Asset Management. Visit us at investmentexecutive.com, where you can sign up for our a.m. newsletter and never miss another Soundbite. Thanks for listening.
**
Go back to the article.