HTML tags removed:
Episode #513: J.P. Morgan’s Gabriela Santos Likes International Stocks for 2024
Guest: Gabriela Santos is the Chief Market Strategist for the Americas on the Global Market Insights Strategy Team at J.P. Morgan Asset Management. Gabriela’s research focuses on emerging markets, especially China. She is responsible for the development of the Guide to the Markets, Guide to China and Guide to the Markets – Latin America, amongst other publications.
Recorded: 12/6/2023 | Run-Time: 49:41
Summary: In today’s episode, Gabi shares her view of the world after a year where the Magnificent 7 has dominated the headlines. She hammers home her excited about the opportunity set outside of the U.S. She explains why she likes the set up for Japan and India, why nearshoring is just one of the reasons why she’s bullish on Mexico, and why she thinks China has become more of a tactical trading market.
Comments or suggestions? Interested in sponsoring an episode? Email us Feedback@TheMebFaberShow.com
Links from the Episode:
1:15 – Welcome Gabriela to the show
1:54 – Reflecting on 2023
4:01 – Forecasting the investment landscape for 2024
8:16 – Inflation trends
11:43 – Identifying areas of interest in current markets
18:15 – Analyzing the dynamics of the Japanese market
19:18 – Delving into various currencies
23:24 – Deciphering the Chinese market: Guide to China
32:46 – Investigating other compelling markets
34:58 – Why nearshoring has Gabi excited about Mexico
38:45 – Evaluating potential future risks
41:54 – Gabi’s most memorable investment
Learn more about Gabriela: LinkedIn; J.P.Morgan; J.P. Morgan’s Guide to the Markets
Transcript:
Welcome Message:
Welcome to the Meb Faber Show, where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas all to help you grow wealthier and wiser. Better investing starts here.
Disclaimer:
Meb Faber is the co-founder and chief investment officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.
Meb: What’s up everybody? We got a rocking show today. Our guest is Gabriela Santos, chief market strategist for the Americas at JP Morgan Asset Management. Today’s episode, Gabi shares her review of the world after a year where the Magnificent 7 has dominated the headlines. She hammers home how excited she is about the opportunity set outside the US, and she explains why she likes the setup for Japan and India; why nearshoring is just one of the reasons why she’s bullish on Mexico, and why she thinks China has become more of a tactical trading market. Please enjoy this episode with Gabriela Santos.
Gabriela, welcome to the show.
Gabriela: Awesome, thank you so much, Meb. Thanks for having me.
Meb: Where do we find you today?
Gabriela: I am in a getting colder New York City at the JP Morgan office here.
Meb: Awesome. Love the city during the holidays, I’ll be there the first week of April, listeners. Maybe we’ll have to do a meetup or something. I’ve never seen a Yankees or a Mets game, so if they’re in town opening week, maybe we’ll do a meetup there.
We’re winding down the year. 2023, soon to be 2024. How’s this year play out to you? Two surprises? Totally, exactly as expected? What’s it been like for you as we start to wind down 2023?
Gabriela: Tis the season of year ahead outlooks, so we have been doing a little bit of a look back at this year and a look ahead, of course, most importantly, I think the number one thing I would say this year is we have been very pleasantly surprised from a macro standpoint, so that much hyped up talked about hard landing definitely never materialized. If anything, we got above trend growth this year, on track of something close to 2.5% growth. We’ve also been pleasantly surprised, I would say, especially by the supply side of the economy. We’ve had improvements when it comes to the labor market, productivity, and as a result, we have had the expected fall in inflation, but for a good reason, which is supply side improvement, not demand side weakness like we had expected. We’ve also had some surprises, I would say, when it comes to market performance, most especially on the negative side by fixed income. We had expected a much better year for yields to have already peaked in 2022 and for this to have been a high single digit return kind of year. Instead, we got a lot more volatility and, so far, low single digit positive returns. On the equity side, as well. On paper, it’s been a strong year of recovery for equities like we expected, but very much concentrated on those Magnificent 7 stocks, and we had not expected that level of AI enthusiasm and that concentrated performance.
Meb: It was a pretty nasty 2022 for the traditional opportunity set. This year, I think people will be drinking a little more champagne than sparkling water or whatever it may be, NA beer from last year. This year is soon to be in the bag. Let’s take a look out to the horizon. Is this going to be another T bills and chill sort of year where people will have all of a sudden got all this yield they never had before and they’re just going to chill out? Or as we look around, let me start with the US, what are we thinking?
Gabriela: So we’re thinking if 12 months from now the strategy is still T bill and chill, then they’re going to wish they had done something different today, and that’s because we really think we’re at peak rates when it comes to fed funds rate and when it comes to just the whole yield curve, and what you normally see 12 months after these transition moments is that you have duration outperform and you have equities outperform, just pure cash. This is one of our biggest challenges, is getting investors to appreciate reinvestment risk. It might look great to have cash at 5.5% today, but where will it be six months from now, 12 months from now? On an absolute sense and then also in a relative sense: the opportunity cost we could have by not having locked in the yields where they are in fixed income and taking advantage of some discounted valuations within pockets of equity markets.
Meb: We were talking about bonds, we said, and you can’t obviously put too much weight on this, but it’s pretty rare for a big asset class like US stocks, 10 year bonds, commodities, REITs to decline multiple years in a row, meaning three years in a row. It’s actually pretty rare and it looks like we’re on pace for the long bond to print three down years in a row if we’re looking at say the 30-year in, which really only happened once: the late ’70s, early ’80s. Now, I don’t know how many people are saying, “All right, I’m going to put all my money in zero coupon bonds at the end of the year,” because they’re down 50% or something. It feels like a trade that would be a little squeamish for most of us, but bonds, certainly for the first time in many years, all of a sudden have this yield again, which is something that I think a lot of people welcome, but also is a little different than that very strange period of zero and negative yielding rates.
Gabriela: Absolutely, and I think what’s interesting is thankfully with the drop in yields in November, if you look at the US Aggregate, the Bloomberg Barclays US Aggregate as a measure of duration or core fixed income, it’s now mildly positive of 2.8%, so we hopefully only saw two negative years when it comes to core fixed income negative returns, but very, very unusual nonetheless. And when we look forward, I do think there’s a strong argument for us not to go back to 0% rates. We’re not talking about huge double-digit returns kind of years for fixed income. There’s some normalization in rates,…
Source link
