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#MARKET STRATEGY — 14.09.2023

When consistent losers become winners

THEME 1

Investment themes 2023 - Updated in September

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History underlines that persistent underperformance over 2-3 consecutive years from either country stock markets or asset classes can subsequently lead to impressive double-digit returns during the following year. We have identified three asset classes that fell both in 2021 and then again in 2022 from commodities, fixed income, and equities.

Silver fell by 36% from February 2021 to September 2022, and still remains over 50% below its 2011 highs. Local currency Emerging Market sovereign bonds declined by 32% between January 2021 and October 2022, and today offer a 6.5% yield. Thirdly, Latin America stocks retreated 23% from January 2021 to July 2022, having not participated in the impressive 2021 global stock market rally. In each case, we see a combination of attractive valuations and positive catalysts.

 

Our recommendations

We prefer a variety of equity, bond and commodity-based solutions for this theme: direct lines, funds, structured solutions and trackers. This “reversion to the mean” theme has several sub-themes:

- Silver – both exposure to the underlying commodity (including via precious metals funds/trackers) and also to silver commodity producers.

- Emerging Market sovereign bonds - in both local currency and hard currency (US dollar).

- Latin American equities – focusing on both Brazil and Mexico, via e.g. the MSCI EM Latin America Index.

 

Risks

 

- The US Federal Reserve raises its benchmark Fed Funds rate well beyond the expected 5.5%  peak rate, which could result in a deeper global economic slowdown than expected.

- An intensification of geopolitical tensions between the US and China could undermine the expected Chinese economic recovery and investor confidence in Emerging Market (including Chinese) assets.

 

Edmund Shing

Global Chief Investment Officer
BNP Paribas Wealth Management

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