While trade risks have come sharply into focus in recent months, asset manager State Street Global Advisors continue to see room for moderate global economic growth given the US Federal Reserve’s more accommodative policy stance.
In its mid-year global outlook published Tuesday, SSGA says it continues to remain upbeat on global economic growth.
“First quarter growth in the US and globally was not as bad as feared and, while wage inflation has risen, inflation overall remains manageable,” commented Lori Heinel, deputy global chief investment officer for State Street Global Advisors.
“Last December, markets became overly concerned about the outlook for global growth, thanks to the impact of the US-China trade conflict and what many saw as the Fed’s overly hawkish tightening schedule.
“Today trade risks persist, but the policy stance has shifted.”
China and India drive growth despite trade risks
Rising protectionism from developed markets such as the US remains an important risk for emerging markets.
But State Street Global Advisors believes that the growth stories of two of the largest countries – India and China – continue to offer opportunities for investors in both the equity and debt space.
“Emerging market equity valuations relative to other regions are at all-time lows, while earnings per share and sales forecasts are holding up well,” highlighted Kevin Anderson, head of Investments in the Asia Pacific region at State Street Global Advisors.
“We think emerging markets are attractive and the long-term growth story is intact although risks remain with the ongoing US-China trade dispute.
“For fixed income investors, higher-yielding emerging market debt should drive long-term returns despite local currency volatility in the short run.
“Overall, the stabilization of the Chinese economy is also positive for emerging markets.”
Looking through the noise
“Looking back over the last year, we can see that the biggest lesson is to look through the noise and to focus on where fundamentals might take us over the longer term,” said Rick Lacaille, global chief investment officer at State Street Global Advisors.
“We see potential for the economic cycle to extend, especially in the US where there is considerable momentum, but continue to monitor trade developments carefully.”