Capital Ideas Live

Over the last 45 years there have been numerous tests for global equity investors: energy crises, runaway inflation, significant swings in exchange rates, multiple recessions, numerous financial market bubbles (and subsequent bursts), seismic shifts in the structure of the global economy, changing trade patterns and unprecedented monetary policy experiments by the world's central banks. In this presentation we will look at these changing patterns of global trade and how to identify patterns for the future including alternative ways of looking at the geography of multinationals and identifying companies that benefit from changing patterns of, rather than just growth in, world trade. Over 45 years ago, back in 1973, Capital Group launched New Perspective Fund (NPF). At the time NPF entered a world of investing that was destined for great change, and in essence, that is exactly why we launched the strategy: to focus on long-term investment opportunities arising from changing patterns of world trade.

Political issues continue to cloud Europe's horizon. Brexit negotiations continue with the risk of a no-deal departure still on the cards for the UK. Italy is too important to ignore and too big to bail out. How does the EU contend with the current national populist government as it pushes for more fiscal room? National populist parties across Europe could disrupt the hold of traditional mainstream parties at the European Parliamentary elections in May 2019. European equity markets have traded at a substantive discount to the US, this is at least partially due to European markets seeking a bigger political risk premium. However selective opportunities exist. Across a range of sectors there are comparable companies trading at lower valuations than their US counterparts. Companies with strong balance sheets and long runways trading at a discount partly due to their address. Capital Group's European Growth and Income Fund (LUX) seeks to take advantage of these opportunities, we will elaborate on our views for European equity markets and on the fund's current positioning.

As Prime Minister Shinzo Abe continues his third term of service into 2021, so will his policies. Ensuring that Japan keeps up with its nominal GDP growth, which has been favourable over the past few years, will be one of the prime minister's main objectives in order to lift the country out of its fiscal deficit and improve its standard of living. On the governance front, much is still needed to be done to refurbish Japan Inc. However, notable progress has been made. Uncovering hidden corporate value by improving shareholder returns and through efficient use of capital can potentially create a virtuous cycle in the Japanese stock market and economy where attractive investment opportunities are there to be identified for the skilled and disciplined stock-picker. The portfolio managers of Capital Group Japan Equity Fund (LUX), through our proprietary fundamental research and long-term global perspective, have been striving to catch such opportunities over a number of years. Our presentation will discuss the outlook for the Japanese economy and consider how the fund is positioned to take advantage of the changes resulting from the reflationary Japanese environment.

While emerging markets (EM) had a volatile year, most of the sell-off was concentrated in markets with clear problems. Global activity data held up well in 2018, which could help stronger EM countries deal with a tightening in global financial conditions. Risks include global trade tensions proving more damaging than we expect and/or policy easing in China proving less effective than anticipated. Overall, we believe that EM debt valuations remain reasonable and we continue to favour local currency bonds over hard currency. Despite significant appreciation in 2017, EM currencies mostly appear fairly valued or undervalued versus the US dollar, particularly after a weak 2018. Investors can access the opportunities of the emerging market debt market via Capital Group's blended emerging market debt or emerging market local currency debt strategies. Capital Group has a long and proven track record in emerging market debt investing, having managed out blended strategy since 2006 and the local currency emerging market debt strategy since 2010.

In a volatile world where many investors are seeking balance, capital growth is important, but so are capital preservation and income. Attaining all three objectives, however, requires a flexible, integrated approach. Access to a broad investment universe is key. Whilst we believe that a global multi-asset approach is one of the best solutions for investors in pursuit of multiple objectives, not all multi-asset strategies are the same. Capital Group has a significant multi-asset heritage having managed multi-asset strategies since 1973. A strategy that invests consistently in stocks and bonds around the world is equipped to seize the most attractive long-term growth opportunities wherever they may appear, while preserving principal. Our team-based, active approach where there is real dialogue across both investment disciplines enables a holistic approach to asset allocation, benefiting from a combination of fundamental research and macro views? The outcome? A diversified portfolio of high-conviction ideas, integrating both bottom-up and top-down investment approaches.