Bifm Chief Executive Officer Clair Mathe-Lisenda
‘US market looks less expensive relative to history’
Bifm believes valuations favour ex-US markets, mainly the UK, Japan, and Emerging Markets
The Bifm Global Sustainable Growth Fund returned 1.66% over Q2 2024, underperforming the benchmark MSCI All Country World Index (ACWI), which returned 2.03%, a quarterly report showed.
The fund size currently stands at P50.2 million.
Bifm said the US market led the gains over the quarter with artificial intelligence (AI) continuing to be the primary support for market performance, and large-cap tech stocks continuing to drive market performance.
“Nvidia, Apple, and Alphabet all posted gains of over 20% over the quarter, with Nvidia again leading the pack,” the fund manager said adding that it rose by almost 37% during the quarter and is now up 150% over the year.
In contrast, Bifm said European equities declined over the quarter. Politics was a key focus, with gains for right-wing nationalist parties in European parliamentary elections. This was notably the case in France, where President Emmanuel Macron responded by calling parliamentary elections, a move that surprised markets and saw French equities underperform the broader eurozone index.
On the other hand, Bifm reports that the UK equities rose, with the FTSE 100 achieving an all-time high driven by the financials, healthcare, and resources sectors. The UK economy rebounded strongly over the first quarter of 2024, growing by 0.7%, following a mild recession over the second half of 2023. In Japan, the equity market returned 1.7% over the quarter. In March, the Bank of Japan (BOJ) took action, and there was a moderate rise in Japanese government bond (JGB) yields, which supported financial stocks in Japan.
Bifm said Emerging Market (EM) equities outperformed developed market equities over the quarter, with the MSCI Emerging Market Index returning 5.00%. “Investor optimism around President Xi Jinping's reforms for the housing sector, along with a rebound in GDP growth, boosted Chinese stocks higher,” the asset manager said.
“In the rest of Asia, Taiwan led the gains and posted double-digit returns in US dollar terms against a backdrop of continued investor enthusiasm for the Semiconductor sector, which is expected to benefit from AI technology.”
Bifm said stock selection was adverse in the second quarter, particularly in information technology, healthcare, and financials. Conversely, the fund manager said stock selection in industrials, materials, and communication services added value in the quarter. Over the 12-month period ending March 2024, the Fund returned 18.06%, underperforming the benchmark by 1.97%.
“Offshore equities continued their strong start to the year, appreciating further in the second quarter of 2024, leading to an 11.75% return over the first half of the year,” Bifm said in its report adding that investor sentiment remained positive over the quarter following solid earnings and the expectation of a “soft landing” for the US economy. Initial concerns regarding sticky inflation and the lack of interest rate cuts subsided over the quarter.
The current extended market rally, which began in late October 2023, was initially fueled by the expectation that falling inflation would allow the Fed to cut rates aggressively. However, inflation has proved sticky, and economic growth has been slower than expected, limiting the Fed’s ability to cut rates. In Europe, inflation has remained on a clear downward path as the market has emerged from a shallow recession, allowing the ECB to cut rates for the first time in five years.
Bifm said geopolitical and policy risk will be of focus, as over 40 countries representing three-quarters of the total global investable universe will hold national elections in the remainder of 2024. The US election in November remains one of the most closely anticipated with Bifm saying the outcome has the potential to dramatically impact geopolitical relationships and sectors such as healthcare and clean energy.
“While we are aware of the potential geopolitical and policy risks and continue to monitor them, we must focus on the economic outlook, earnings, and growth trajectory for our investment holdings and valuations.”
Bifm believes that valuations favour ex-US markets, mainly the UK, Japan, and Emerging Markets. However, the. firm said the US market looks less expensive relative to history when you look beyond the “Magnificent 7” mega-cap growth stocks.
“The case for value is more compelling outside of the US. On a relative basis, valuations look more attractive outside the US as central banks are responding more quickly than the Fed in easing policy rates,” Bifm said.
Given its diversified approach, the asset manager said it is very comfortable with a more range-bound environment, and its focus remains on identifying attractively valued high-quality stocks that are well suited to navigate a multi-themed market.
Comments