Invesco Canada blog

Insights, commentary and investing expertise

Tracking China’s recovery and a dire U.S. earnings season

Last week was another momentous one for economies and markets, with particular attention being paid to the economic recovery in China, earnings season for U.S. stocks, and the Federal Reserve’s views on interest rates. Below, my colleagues from the Global Market Strategy Office and I answer some of the most pressing questions we have received from clients in recent days:

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As earnings season looms, portfolio managers look for long-term opportunity

Earnings season is heating up in earnest, giving investors a clear glimpse into the economic impact of the global lockdowns designed to slow the spread of the coronavirus. While investors brace themselves for bleak business results, we are so glad to see that these lockdowns appear to be working as intended from a public health perspective – many countries show evidence of “flattening the curve” of infections and fatalities. This is leading to the inevitable conversations of how best to re-open economies – a task that will require caution so as not to overwhelm health care resources with a second wave of infections.
 
With all of this as background, our portfolio managers continue to look for ways to guard against the looming risks and to position themselves to find opportunities in the recovery – no matter what path that might take. In this blog, I highlight the perspectives of four Invesco investment experts:

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Tactical asset allocation views – April 2020

The COVID-19 global outbreak that started in early January represents an exogenous shock to the global growth cycle, at a time when the world economy was on the cusp of a new synchronized cyclical recovery. Driven by this shock, our macro framework moved into a global contraction regime in February (i.e., global growth expected to be below trend and decelerate).
 
This regime remains in place today and is broad-based across regions (Exhibit 1). Furthermore, given the increased severity of the lockdown and quarantine measures undertaken by governments around the world, it is highly likely that most, if not all, countries and regions will experience a significant recession in the first half of 2020. Therefore, we expect the economic data to deteriorate meaningfully over the next few months.
 
At this stage it is difficult to determine how long this macro environment will persist. Historically, contraction regimes in our framework have lasted on average six months with wide dispersions, ranging between two and 15 months across all episodes since the 1970s. We will continue to follow the data and the framework as it runs its course, but it is nonetheless valuable to compare the current downturn to recent episodes of financial turmoil, despite meaningful differences in the source of the shock and market imbalances.

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History provides insight on how long a market downturn may last

The Greek historian and general Thucydides famously said, “History is philosophy teaching by examples.” That brilliant observation came to mind when we were thinking about how history can be a valuable guide for navigating volatile market environments.

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Video: Perspective on global equity sell-off

Given the high level of volatility and the recent market selloffs, we thought it would be helpful to provide our perspective on what we have seen in Global Equity markets in February, March, impact on portfolio and what our outlook is.

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Video: Finding opportunities in investment grade bonds

The spread of COVID-19 has created unprecedented market turmoil. While the equity space garners the most headline attention, it’s been a very volatile time for the fixed income markets, particularly within the investment-grade space. In fact, over the last few weeks, we’ve witnessed six out of the 10 largest one-day moves in history.

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Where do portfolio managers see opportunities in today’s environment?

The three-pronged fight against COVID-19 and its economic impact continues. Central banks are providing monetary policy support to keep banks and markets functioning, national governments are providing fiscal policy support to consumers and businesses, and governments at all levels are taking public health policy steps to contain the spread of the virus. (Not to mention the tireless dedication of the health care workers on the front lines and the scientists searching for treatments and vaccines.)

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Positioning for the rebound?

Before I answer the following specific questions, let me first say that these are the sorts of times we live for as fund managers. Volatility provides opportunity, uncertainty leads to mis-pricing. Work we have done over several years can now be brought into use: we have already run the ruler over many businesses which used to trade at fair values but which now trade at bizarrely cheap valuations.
 
Decisions we make in these weeks of high-intensity can be crucial for performance both in absolute and relative terms. And Asian & Emerging Markets Equity of previous situations of similar intensity (1998, 2001, 2003, 2008/09, 2015/16) helps inform these crucial decisions. While I am deeply unhappy with the performance of our investment strategy this year, I believe there are now many buying opportunities out there.

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Where do stocks and bonds go from here?

In last week’s blog, members of Invesco’s Global Market Strategy (GMS) team in Hong Kong, Italy, London, Tokyo and New York shared their on-the-ground insights of the fight against coronavirus from a health care, monetary, and fiscal perspective. Today, we take a deeper dive into the potential implications of the pandemic on U.S. stocks and bonds, as well as the GMS team’s view of asset allocation considerations.

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A new dashboard to consider for signs of a new market cycle

Chuck Noland, Tom Hanks’ character in the movie Cast Away, may have perfectly captured the mood we need to bring to these challenging times, when he said, “I gotta keep breathing. Because tomorrow the sun will rise. Who knows what the tide could bring?”

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Coronavirus impact and response: A global view

Every morning, my day begins by discussing the latest developments in the coronavirus fight with my team of strategists on-the-ground in Hong Kong, Italy, London, Tokyo, New York and elsewhere. Today, my weekly blog features several members of Invesco’s Global Market Strategy Office, who answer the most pressing questions they’ve been hearing from investors who are concerned about COVID-19 and its impact on the global economy.

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Rocky Balboa offers insights on whether investors should consider buying during the coronavirus outbreak

Rocky Balboa said, “You, me, or nobody is gonna hit as hard as life. But it ain’t about how hard ya hit. It’s about how hard you can get hit and keep moving forward. How much you can take and keep moving forward. That’s how winning is done.”

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Chaos can create opportunities

Heading into 2020, the global economy was showing signs of stabilizing and risk assets were benefiting from the cyclical rebound in activity.
 
In recent months, however, the coronavirus has delivered a significant external shock to Chinese and global economic activity at a vulnerable stage of the business cycle.
 
Meanwhile, markets are reacting to the contagion and associated loss of output with a dramatic repricing of risk across a wide array of assets.
 
The S&P 500 Index has fallen almost 30% from its all-time high in February,1 culminating in the highest percentage increase in equity volatility of the cycle and in the history of the Chicago Board of Options Exchange (CBOE) Volatility Index (VIX).

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Why we embrace “Core Plus”


March 17, 2020
Subject | Active management

Canadian fixed income investors benefit from the one of the highest credit quality bond markets globally.1 In addition to the incremental yield captured by owning Provincial and Municipal debt, the corporate bond market is made up of well-managed investment grade rated issuers. Unfortunately for investors who choose to own the broadly followed Canadian Aggregate bond index, corporate debt only makes up 28% of the total.1

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The power of portfolio flexibility


January 15, 2020
Subject | Active management

Many investment managers apply strict portfolio constraints under the guise of risk management best practices. These often include limits in sector over-/under-weightings, geographic concentrations, minimum levels of portfolio holdings and/or market capitalization requirements. The challenge around these types of curbs is that while they are designed to reduce potential return variance, typically in relation to a particular benchmark, they also can considerably constrain excess return potential.
 
Overly restricting a potential investment universe can work against active managers’ ability to fully exploit research and market mispricing opportunities. To help illustrate this, think of constraints from the perspective of retail consumers.
 
A consumer who is free to purchase from any retailer without restriction can make more informed choices –and likely better purchases in terms of price, quality and overall value –than consumers who must spread purchases across at least fifty different retailers, restrict purchases from retailers headquartered in certain countries and/or only make purchases from retailers with a minimum of $1billion in annual sales. Applying the same logic to investment management suggests that greater selection choice combined with effective security research can offer a more favorable position to generate excess returns.

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Our new study shows factor investing adoption continues to increase globally

Invesco’s Office of Global Factor Investing believes that systematic, evidence-based application of investment factors is part of a permanent trend as these strategies can complement other approaches in achieving client objectives. The most common client journey starts with factor investing in equities before moving into other asset classes; however, adoption is often client-specific.

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Is it too late to invest in small caps?


October 23, 2019
Subject | Active management

Over 10 years into an economic expansion, and with recession concerns moving to the forefront, many investors are asking whether it is too late to invest in small-cap stocks. Conventional wisdom says that small caps are hit harder in a recession than large caps, so if a recession is imminent, then one should not own small-cap stocks. But I believe this is the wrong question to ask. For investors who are concerned about small caps, I would note three things: Trying to time the market is generally a fool’s errand, small caps have delivered historical long-term outperformance, and small-cap valuations look attractive, in my view — especially in certain industries.

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Idea generation in the investing world

A frequent topic of discussion in the investing world is idea generation — how do you best come across great investing opportunities? Among the typical avenues that institutional investors explore are conferences, management roadshows (where a broker brings a management team to see investors in a city), screening tools, and their own professional networks.

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The potential benefits of Emerging Market debt


July 17, 2019
Subject | Active management

Emerging market debt has evolved over the past few decades from a source of political and economic vulnerability to a potential positive driver of portfolio returns. The addition of new sovereign issuers (denominated in U.S. dollar and euro) has broadened the opportunity set for global investors, and corporate issuance has meaningfully contributed to its growth.

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