FNArena’s Weekly Insights – October 24 2022
In this week’s Weekly Insights:
-In Bonds We Must Trust
-Conviction Calls
-Research To Download
By Rudi Filapek-Vandyck, Editor FNArena
In Bonds We Must Trust
Normally, when economic recession is coming, you’d expect defensives and solid & reliable Quality industrials to be among the outperformers in the share market but 2024 is not following that script – at least not thus far.
Shares in supermarket operators Coles ((COL)), Metcash ((MTS)) and Woolworths ((WOW)) are down since the start of the calendar year, while packaging giant Amcor ((AMC)) and its local offshoot Orora ((ORA)) are equally notably absent from this year’s star performers on the ASX.
What to think of Australia’s third largest index weight, global plasma-leader CSL ((CSL)), which only a week ago increased its profit guidance for FY23, but whose share price cannot hold on to positive momentum for longer than a few days this year?
A similar observation can be made for ResMed ((RMD)); the global leader in diagnosing and treating sleep apnoea stands to extra-benefit from a major competitor’s problems. ResMed’s also not so flash when it comes to sustaining share price momentum.
Is it possible, maybe, investors are simply not that convinced economies stand to lose most of their momentum in the year coming?
Not so, according to the latest global fund manager survey by Bank of America, which, according to BofA market strategists “screams” of mass capitulation.
Average levels of cash at 6.3% have never been as high since April 2001 (in the midst of an extremely brutal bear market). Fund managers are now three standard deviations underweight equities.
A net 72% of respondents sees a weaker economy on the horizon, only a smidgen off the record high print of the July survey. 91% says corporate earnings will be lower than is forecast today.
A net 74% of survey respondents sees a global recession in 2023; the highest percentage since April 2020, at the very beginning of the global pandemic.
So how then can we explain this great discrepancy between the overwhelming acceptance of recession next year, with negative consequences for corporate profits, and the failure of the usual, defensive stalwarts to perform?
I believe the answer lays with global bonds.
