Move with the current.

Get ready for new opportunities.

 

A seismic transformation is underway in financial markets, driven by the rise of AI, a fundamental rewiring of the global supply chain, and the low-carbon transition.

 

Change is happening, but its speed and impact are uncertain. Tapping into structural growth at the core, while being nimble to capture shorter-term opportunities is more important than ever.

 

To thrive, you’ll need to adapt. Discover two principles that will help position for what comes next.

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Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

1. Equities for growth

It sounds simple, but equities are the asset class for long-term growth. You can’t capitalise on the transformative potential of the world’s latest innovations without them.

A selective approach targeting exceptional companies with dominant market positions may be one way to take advantage of these strategic tailwinds.

Start with the opportunities found at the forefront of technological innovation such as AI and in the massive infrastructure investment needed to fuel its expansion. Then look to the beneficiaries of health care themes such as the growth of GLP-1 drugs.

A long-term approach that brings in quality companies that can grow their earnings over time might also include the resilient earnings and brand heritage available in some areas of the luxury goods sector. These high-quality growth stocks can sustain performance through market volatility – and help you build a quality core. And this approach can be enhanced by advanced systematic methods that analyse big data to identify potential opportunities.

2. Nimble cyclicality

Away from the core, agility is key. Adopting a nimble, tactical mindset and staying light on your toes can help you exploit shorter-term economic cycles and market conditions.

The goal: to move with the current and capitalise on less structured or long-lasting opportunities. Valuations are one place to start. Traditional energy companies don't appear to be priced for resilient long-term demand, whilst the strength of demand growth for renewable power also appears to be underestimated.

We believe copper has been a 2024 bright spot, with supply-chain investment lagging demand for this key transition metal. Should this deficit sustain, it may feed through into better margins for copper miners.

Our belief in European equities has strengthened recently, with earnings at a turning point after years of stagnation. Taking a selective approach to look for winners through active strategies will be key to success in an environment where macro uncertainty has been rising. Index strategies can be used to target specific sectors where earnings appear particularly undervalued, like European banks.

Now is the time to focus on quality and growth

Watch our exclusive interview with Karim Chedid, Head of EMEA Investment Strategy, who explains why macro and market volatility coupled with long-term mega forces, like digital disruption and AI call for investors to build a quality core in portfolios and seize opportunities in areas where the potential damage from heightened volatility appears priced in.

Lauren: Karim, let’s set the scene, what’s been going on in equity markets this year?

Karim: Investors have had to cope with a lot of uncertainty, and that’s largely centred around inflation and interest rates. We think the new regime of higher economic and market volatility – by which we mean greater and more frequent swings in economic data and in stock and bond markets – won’t end any time soon.

Lauren: Can you talk more these mega-forces and how they are impacting markets?

Karim: Uncertainty on the economic outlook and central bank policy have led to significant dispersion in company earnings and returns. Mega forces are big, structural changes that are happening over the long term, they are already driving shifts in profitability across economies and equity sectors as well as our outlook for inflation and economic growth today. We think that mega forces like digital disruption and AI will widen the gaps further. Some companies stand to benefit significantly, others will find themselves increasingly at risk.

Lauren: So, what’s next for the rest of the year and beyond?

Karim: This is all about adding some resilience to your portfolios with higher quality companies from certain sectors. We also like to diversify by using equity income stocks, which combine the potential for capital appreciation with a relatively attractive income stream from companies that we believe will be able to consistently return value to shareholders.

Having built a quality core, we look to seize opportunity where the potential damage from higher economic and market volatility appears priced in, and where sector-specific tailwinds should lend support.

Lauren: Karim, let’s set the scene, what’s been going on in equity markets this year?

Karim: Investors have had to cope with a lot of uncertainty, and that’s largely centred around inflation and interest rates. We think the new regime of higher economic and market volatility – by which we mean greater and more frequent swings in economic data and in stock and bond markets – won’t end any time soon.

Lauren: Can you talk more these mega-forces and how they are impacting markets?

Karim: Uncertainty on the economic outlook and central bank policy have led to significant dispersion in company earnings and returns. Mega forces are big, structural changes that are happening over the long term, they are already driving shifts in profitability across economies and equity sectors as well as our outlook for inflation and economic growth today. We think that mega forces like digital disruption and AI will widen the gaps further. Some companies stand to benefit significantly, others will find themselves increasingly at risk.

Lauren: So, what’s next for the rest of the year and beyond?

Karim: This is all about adding some resilience to your portfolios with higher quality companies from certain sectors. We also like to diversify by using equity income stocks, which combine the potential for capital appreciation with a relatively attractive income stream from companies that we believe will be able to consistently return value to shareholders.

Having built a quality core, we look to seize opportunity where the potential damage from higher economic and market volatility appears priced in, and where sector-specific tailwinds should lend support.