When, Not If: A Synchronized Global Recovery Is Still on the Horizon, Says Our Global Equity Team

With a nod to new concerns for changes in monetary policy and the threat of a COVID-19 variant, the Calamos Global Equity Team has headlined its just-published 3Q 2021 Outlook “Holding Pattern: Synchronized Global Recovery Delayed, Not Dismissed.”

“We continue to believe clearer skies are on the horizon as economic recoveries among countries synchronize at the same time deglobalization continues…and we maintain a positive bias across the portfolios and a balance of cyclical and secular exposure as we navigate these volatile markets,” write Nick Niziolek, CFA, Co-CIO, Senior Co-Portfolio Manager, Dennis Cogan, CFA, SVP, Senior Co-Portfolio Manager, Paul Ryndak, CFA, SVP, Head of International Research, and Kyle Ruge, CFA, AVP, Senior Strategy Analyst in their forecast on the global markets and the positioning of the Calamos global and international portfolios.

Highlights of the 12-page report include:

United States. The team’s positioning in the U.S. remains largely unchanged since the beginning of the year, as they favor a balance of cyclical and secular growth exposure in the portfolios.

“Significant vaccination progress has been the linchpin in a broad reopening and the ramp-up of activity across the country. Manufacturing data continues to be robust, and inventory levels remain low, which portends sustained strength,” notes the team.

“That said,” they continue, “economic surprises have decelerated markedly since the second half of 2020, and the rate of vaccinations is no longer accelerating. While 70% of the jobs lost in the first half of 2020 have been recaptured, recovering the next 30% of those jobs will be more difficult given productivity gains and permanent disruption caused by Covid shutdowns.”

Europe. The team’s constructive outlook for Europe considers several factors: households’ willingness and ability to spend, further Covid reopening, fiscal support, and underlying economic strength and stability. And, the team adds, “the structure of the market positions Europe to benefit from an environment of increasing interest rates and reflation.”

Japan. The Japanese equity market is heavily weighted toward high quality industrial, technology, and manufacturing companies that export goods globally—companies that would be positioned to benefit from improvements in global growth and increased capital investments.

However, the team explains, “we remain selective in our exposure to Japan…From a liquidity standpoint, we have been surprised at the degree to which the Bank of Japan (BoJ) has reduced its QE program, specifically via the more opportunistic use of the ETF/equity-buying program. While the BoJ has not indicated that it is removing monetary support, this is a development that we will continue to monitor closely.”

Emerging Markets. Active management and a selective approach to allocating capital should provide the team with key advantages in emerging markets. To date, “this selective approach has led us to increase our emphasis on companies that are best positioned to benefit from a recovery in global growth. Central banks in emerging economies, such as Russia, Brazil, the Czech Republic, Hungary, and South Africa, have already begun rate hikes or plan to do so soon. Other countries, such as Chile, are expected to announce plans to tighten soon as well. While the market has discounted earlier rate hikes by the Federal Reserve, many emerging economies will raise rates even sooner and to a larger degree. This will likely prove to be a headwind for dollar strength as investors seek higher yields outside the U.S.”

The Outlook elaborates on India (where the recent equity pullback was used to add exposure) and China (whose stocks the team believes are in a stronger position to weather near-term Fed tapering concerns).

Commodities. This quarter’s Outlook includes commentary on commodities, which corrected during the final few weeks of the quarter. The team named the new China supply and a shift in Federal Reserve policy expectations as the two most likely reasons for the selloff.

“To us, the recent decline looks more like a healthy correction; commodity prices are still well ahead of pre-Covid levels two years ago. In many instances, fundamentals support higher prices, as the commodity complex has made minimal investment in new supply over the past decade, while demand is increasing because of green infrastructure spending and traditional infrastructure investments.…The combination of significant capital flows toward these green initiatives and away from dirty commodities provides a backdrop for a multi-year period during which commodity producers can outperform,” according to the team.

Read the Outlook in its entirety here. For additional thought leadership, please see the Calamos global team’s blog posts or contact your Investment Consultant at 888-571-2567 or caminfo@calamos.com.