May 24, 2024
An increasingly ‘two-speed’ global economy demands that investors revise their portfolios sooner rather than later, warns the CEO of one of the world’s largest independent financial advisory and asset management organizations.
The warning from Nigel Green of deVere Group comes as leaders gather for the Group of Seven (G7) meeting in Italy facing the challenging prospect of ever-more desynchronized monetary policies.
He says: “The global financial environment – which is, of course, influenced by varying economic conditions and policy responses – is becoming increasingly complex due to diverging growth trajectories.”
The US economy continues to demonstrate surprising resilience, which has significant implications for investors.
“The Federal Reserve’s commitment to a higher-for-longer interest rate path, which is intended to keep inflation in check, of course means that borrowing costs remain elevated,” notes Nigel Green.
“With higher interest rates investors are likely to find opportunities in financial stocks and sectors that benefit from a stronger dollar, such as imports, travel and consumer discretionary.”
“Investors should be cautious about companies with significant debt exposure, as their cost of financing will be high, potentially squeezing margins and profitability.”
Contrasting the scenario in the US, the eurozone is on the cusp of what could be its first interest rate cut of the year.
“We expect the European Central Bank (ECB) to announce this in June, which will encourage investment and spending.
“It’ll be positive for equities, particularly in sectors like real estate, utilities, and consumer goods,” comments the deVere Group CEO.
“However, the underlying reason for the rate cut – sluggish economic growth, also signals caution. European companies may face headwinds from subdued demand and potential deflationary pressures, which could dampen revenue growth and profit margins.
“A weaker euro, as a consequence of lower interest rates, could also impact companies that rely heavily on imports, increasing their costs.”
In the UK, recent improvements in consumer confidence and a near three-year low in inflation are positive signals for investors.
Prime Minister Rishi Sunak’s call for a general election on July 4 adds an element of political uncertainty to the economic landscape. The timing of the election, amid signs of economic recovery, is a strategic move to capitalize on the improving sentiment.
“Improved consumer confidence will drive higher spending, benefiting retail and consumer goods companies. The reduction in inflationary pressures can also alleviate cost pressures on businesses, potentially enhancing profit margins.”
Nigel Green continues: “The divergence in economic performance and monetary policy among major economies requires investors to adopt a more nuanced and diversified approach.
“A two-speed global economy means that investment strategies must be tailored to specific regional conditions and their policy environments.”
Investors should ensure their portfolios are well-diversified across different regions, asset classes and sectors to mitigate risks associated with economic and policy divergence.
They might also need to consider hedging strategies to manage currency risk.
“We would urge investors to revise their portfolios at their earliest convenience to sidestep risks and capitalize on the new opportunities to build wealth,” concludes the deVere CEO.
