Positioned for the Global Synchronized Recovery

The Calamos Global Equity Team has published thought leadership about the opportunities they see in the global markets. In “Sustained Tailwinds for Global Risk Assets,” Nick Niziolek, CFA; Dennis Cogan, CFA; Paul Ryndak, CFA; and Kyle Ruge, CFA, provide an outlook on the global markets and the positioning of the Calamos global and international portfolios.

Despite the uncertainty of the election and Covid-19, the team believes there is considerable upside potential for active managers, noting: “With so much near-term uncertainty, one might expect a less constructive outlook for global equities. However, decades of experience investing through cycles has taught us that volatility creates opportunity.” Factors that they believe support risk assets include continued accommodative monetary policy and fiscal efforts.

Highlights of the paper include:

United States. Consumer strength and monetary policy will continue to provide tailwinds to the U.S. economy, the team believes. “With home prices increasing, equity markets rallying globally, and savings rates at very high levels, the consumer balance sheet is in a good position today.” The data coming out of the U.S. housing sector is particularly encouraging, and the team believes the U.S. housing industry is positioned to benefit from a sustained recovery.

Additionally, select mega-cap companies exposed to secular themes can continue to perform well, bolstered by dominant positions and improving fundamentals. However, the team also sees opportunity in companies positioned to potentially profit from economic rebound. As a result, team has positioned the Calamos global and international portfolios with a “barbell approach” that includes “significant exposure to businesses benefiting from secular tailwinds and the acceleration in penetration and adoption due to Covid-induced demand,” as they make incremental increases to more cyclical growth fare and reflationary beneficiaries.

Europe. The team notes a strong rebound in economic activity. One important catalyst is increased coordination among EU members, including agreement around a massive €750 billion recovery package, with a supranational bond issuance. This recovery package, combined with programs from the ECB can “provide countries across Europe with the fiscal space and financing needed to stimulate their economies.”  The team has positioned the Calamos global and international portfolios in areas that can benefit from increased spending on renewables and green infrastructure initiatives.  Also represented in the portfolio are companies in “payments, healthcare, and online services that should grow strongly irrespective of the cyclical growth backdrop.”  The team notes “as the recovery in global growth takes hold into 2021, we expect earnings for companies in more cyclically oriented sectors with higher operating leverage to demonstrate improving profitability.” Consequently, the team is making select additions to cyclical growth names with quality attributes.

Emerging Markets. Emerging markets require a highly active and selective approach, given the pronounced variations in economic and market fundamentals. Additionally, the pandemic has revealed limitations of a benchmark constrained approach. The team observes, “Year-to-date emerging market index returns have yet to recapture their pre-Covid highs. But for active managers who do not utilize a benchmark to define their universe, there has been significant opportunity to benefit from the tremendous growth and innovation in the [emerging market] asset class.” In regard to positioning, the team is particularly constructive on Asia, which is benefiting from its first-in, first-out experience of Covid as well as from an acceleration in export activity as the U.S. and Europe recover.

Japan. The team is encouraged what they’ve seen so far around the transition from “Abenomics” to “Suganomics,” including a “continuation of the existing three arrow strategy with a new emphasis on the digital transformation of both the public and private sector.” To capitalize on this, the Calamos global team has invested in information technology services. The team also believes that opportunities in Japan’s equity market will be supported by global synchronized recovery. “With a combination of attractive relative valuations and significant exposure to capital-intensive manufacturing and automation industries, the Japanese equity market tends to perform well during these reflationary periods.”

Read the paper in its entirety here. For additional thought leadership, please see the Calamos global team’s blog posts, including “Perspectives on Growth and Inflation for a Post-Covid World,” and “Cyclical Themes: Outlook for the U.S. Dollar.”