The global economy remained relatively resilient despite the prolonged period of high interest rates thanks to accumulated wealth and low unemployment levels, while markets were aided by the technology sector which is poised for more future growth driven by AI expectations, according to Jordan Portelli, Chief Investment Officer at Calamatta Cuschieri Moneybase plc.
“To a certain extent I disagree with the notion that the global macroeconomic landscape is not very positive because contrary to predictions and despite the prolonged period of high interest rates, the global economy remained relatively resilient to date. Amongst the main reasons is the accumulated wealth and the historical low unemployment levels. Expectedly, it is fair to see that economic data is softening, and this is what central banks are after to kick-off with interest rate cuts. The question is whether the timing of these rate cuts will be appropriate without pushing the economy into distress.”
Portelli explained that while a more resilient economy was a catalyst for good performance in financial markets, markets also performed well on the artificial intelligence (AI) hype which drove market capitalization equity indices to record highs in mid-July.
“The notion of a not-so-positive global macroeconomic landscape is more due to the ‘known unknowns’, being U.S. elections, geopolitics and possibly a weaker than expected real economy on the back of prolonged high levels of interest rates.”
“Definitely, the landscape is surely in a better shape than many economists had expected earlier in the year.”
How are investment trends changing and are today’s investors more knowledgeable and informed?
“In the past few years, we have seen an increased share in market participation from retail investors. Unfortunately, this has changed investment trends expectations which would be traditionally seen by institutional investors. What was before based more on fundamentals, today we are seeing more of momentum trading which is also being amplified by what we call in investment jargon the ‘herding effect’, where investors buy when they see others buying. Thus Investors might have become more informed, but not more knowledgeable.”
Portelli explained how CC Funds’ style of investing combines a bottom-up to top-down approach where picked investments are based on internally generated fundamental research.
“Our style is not driven by sell-side research. This reduces subjectivity and gives us more comfort in our decision-making.”
We have seen an increased share in market participation from retail investors
Asked about the increasing focus in the investment world on measuring positive impact, Portelli described this approach as a step in the right direction but noted that real tangibility will take more time than expected to materialize.
“A lot has been said but real tangible implementation is minimal, especially on the domestic front. From our end, we ensure that any ESG risks relevant to the investments we are considering are assessed, evaluated and analysed. So far, the outcomes have not conditioned our investment decisions.”
Technology and communications sectors have recently been the highest performers in the equity markets. Will this trend persist?
“The technology sector’s positive performance was mainly driven by AI expectations and market participants are expecting most of those companies who are investing heavily in AI to drive profits higher. The sector remains a sensitive one, as experienced over the past couple of days, and investors should be very mindful in terms of downside risks. But we are long-term believers of tech as a future driver for growing one’s wealth, and thus the recent market retracement might be an opportunity to dip in.”
Could fund managers who have not jumped on the AI bandwagon, be regretting it?
“Let’s just say that those fund managers who had not invested specifically in Nvidia could be possibly regretting it. But from a periodic performance point of view, the answer is yes. However, there were also other sectors which benefitted from AI and one could have benefited by being exposed to sectors which were also riding the AI wave.
“Ironically, sectors which by nature are considered defensive, such as utilities, have been amongst the best performers to date given that they also benefitted from AI expectations.”
Referring to the scepticism on the potential of return from equity markets for the remainder of the year, Mr Portelli noted how the recent setback was due to scepticism about the U.S. economy and its sanity going forward and that this setback is being viewed as an overreaction with the abnormal volatility due to ‘summer doldrums’.
“A softer-than-expected economy will always trigger some market retracement, but this does not mean that the market will not eventually recover and close the year with decent gains.
“From our end, we did increase our cash levels in names which we had notable unrealized profits, also on the back of the mentioned earlier ‘known unknowns’ in a usually quiet summer period. We intend to monitor upcoming sensitive economic data and eventually re-deployed cash in the eventual presented buying opportunities.
“Bargain plays are emerging, but better entry levels might be presented very shortly. Constant vigilance is imperative to identify these bargain opportunities,” concluded Portelli.
This article was first published in The Corporate Times.