Capital Group, with $2.8 trillion AUM, shared its investment outlook during a 4 February press conference. Among the highlights: the economic outlook under the new Trump administration, the importance of re-globalisation, and the three transformational trends that may drive greater breadth of equity market leadership in future.
Global growth, while moderate and on a positive trajectory, is still weaker compared to pre-covid. It’s also increasingly dependent on the US but becoming more heterogenous, as Equity Investment Director Christophe Braun explains: “In the last years, there’ve been mini-recessions since the pandemic,” including industries like tourism, semi conductors, construction in China, etc.
“As a result, you can see that growth and economic expectations are very different, one region to the other, and I think this will be accelerated—these growth and economic expectations, with a return of a Trump administration,” he added, citing the recent announcements about the U.S. president’s first round of tariffs on Canada, Mexico and China.
India is becoming the “big winner” in the shift of supply chains away from China, while Japanese listed companies could be becoming more attractive, as they expand their investments in R&D and as the country leaves decades of inflation. Braun added that the U.S. seems to be facing a “Benjamin Button economy”, going backwards into mid-cycle, as profit margins peak and employment has improved significantly. Meanwhile, inflation remains sticky—slowing, allowing central banks to cut rates, although the impact remains to be seen.
“[…] fixed income could once again provide a measure of income, diversification, and ballast against stock market volatility.”
Three transformational trends
Even if signals are mixed on economic growth, corporate earnings still matter, and there has been a broadening of sectors that could present diverse opportunities for investors. “There are other companies, other sectors, that are becoming more relevant again, compared to previous quarters where the ‘Magnificent Seven’ were dominating,” Braun explained. Sectors like materials, real estate, financials, energy and healthcare (in addition to IT) have outperformed the MSCI Index during mid-cycle and may be undervalued.
Capital Group also indentified three disruptive trends it believes will impact the equity market moving forward: accelerated digital disruption, beyond just AI; healthcare innovation, particularly as AI facilitates the handling of data; and what it refers to as an “industrial revolution”. As Patrice Collette, Equity Portfolio Manager, explained, the shifting of supply chains and the energy transition are among the driving factors for companies to up their capex in order to prepare for this cycle.
Fixed income still attractive
Joining from London, Fixed Income Investment Director Flavio Carpenzano also provided his insights, emphasising the importance of not being fooled by short-term market volatility. The markets remain attractive; compared to beginning 2023, yields have somewhat dropped, but starting yeileds have been strongly indicative of future results.
“Over the past 50 years, the negative correlation between bonds and equities typically occurred when inflation was close to the Fed’s 2% target,” he concluded. “Although there are exceptions (notably the 1990s), periods of high inflation have generally seen both asset classes become positively correlated. Looking forward to 2025, inflation is trending, which means fixed income could once again provide a measure of income, diversification, and ballast against stock market volatility.”
A unique investment approach
Founded in 1931 in the U.S. in the aftermath of the financial crisis, Capital Group is a private company which today boasts $2.8 trillion in AUM. Having opened its Luxembourg offices a decade ago, the local team now includes 43 associates—part of its wider network of 9,000 associates worldwide.
Its investment approach, “The Capital System”, focuses on a multi-manager structure, with each segment run by an individual manager, and research-driven decision-making. It’s what Bérenger Vidal de la Blache (Managing Director, Financial Intermediaries & Institutional, Luxembourg, Belgium & France) calls a “foundation of our success”, adding: “We blend highly experienced investors with different perspectives and backgrounds to create suitable portfolios for clients… You get the best of both worlds: collaboration and teamwork on one hand, but also indepdendence and individual accountability on the other hand.”
