‘Emerging markets are the best bet’

Too late to get into equities?

Having hit an all-time high in mid-January, the MSCI World index of global equities has since shed almost 7% at the time of writing, as conviction in the uptrend for stocks appears to be showing signs of waning. Overconfidence in markets in 2017 has been replaced by volatility this year. Michel Perera, chief investment officer (CIO) of Canaccord Genuity Wealth Management, is nonetheless still optimistic on the outlook for equities. He says ‘the bull market still has a way to run’.

With the US economy firing on all cylinders, having grown for 11 consecutive years, and a synchronized global upswing in growth, investors are increasingly discussing the timing and likelihood of an impending recession. According to CNBC, strategists at Bank of America Merrill Lynch believe it will not be until 2021 at the earliest. Canaccord’s Perera appears to agree with this assessment. He says ‘we have none of the technical indicators of a recession ahead’, nor ‘the fundamental reasons for a recession. We therefore have at least a couple of years ahead’.

Where to invest for the short and long term?

In the short term, Perera says Europe (notably Germany) and Japan look attractive, as they could be set to benefit ‘from an oversold industrial sector and depressed cyclicals in general, due to trade fears’. In the medium term, Perera likes healthcare, information technology (IT), energy and financials in terms of sectors, as he believes the US market will recover sharply in the fourth quarter (Q4) after the mid-term elections. In the long term, he thinks emerging markets are the best bet. Perera says ‘they are cheap compared to the rest of the world, have excellent earnings prospects and fundamentals that cannot be derailed due to domestic consumer spending and increasingly strong technological capabilities’.

Key concerns from clients

Canaccord Genuity’s Perera says clients are most worried about the next bear market, and the impact of US President Donald Trump’s policies for markets and investments. His clients are also concerned about the net effect of the US tax cuts and trade tensions along with war risks from Iran and Korea. Investment wise, Perera says his clients are unsure about whether to keep focusing on the US tech sector and whether to continue to de-emphasise the UK.