JHG - Looking ahead to 2023's back half for investing opportunities

2023-06-25 17:18:00 ET

With the first half of 2023 in the books, investment prognosticators have issued their expectations for the remaining six months. Here are some opportunities they see for the rest of the year:

KKR's ( KKR ) Henry McVey said he expects short-term strategies to underperform against a complex backdrop of an asynchronous global economic recovery. "Now is still a good time to look for compelling investing opportunities across Credit, Equities, and Real Assets, despite challenging macro conditions that may create a series of rolling recoveries and mild contractions across different sectors and economies."

He urges investors to "stay the course", particularly in key secular trends including energy transition, the security of everything, and digitalization.

Janus Henderson Investors' ( JHG ) global head of Fixed Income, Jim Cielinski, said: "Historically, one of the best times to own fixed income has been when policymakers make their last rate hike in a hiking cycle, which could augur well for rate-sensitive areas such as government bonds and investment grade corporates in the second half of 2023."

Quality counts: For fixed income investing, he emphasized focus on credit quality. "Valuations among financials and commercial mortgage-backed securities gapped wider in the recent banking panic," he said. "This cheapening opened up some opportunities, but it also serves as a reminder that sentiment towards credit markets can shift rapidly. To stay on the right track, it will be more important than ever to have a good understanding of a borrower’s fundamentals."

As for equities, Janus Henderson Investors' Matt Peron, director of research/portfolio manager, advised investors to prioritize quality companies. "We continue to expect that exceptionally tighter monetary policy will constrict economic activity and, with it, companies’ ability to grow earnings," he said.

"A quick succession of trough earnings and trough multiples also represents opportunity for long-term investors," Peron said. He suggested keeping a defensive stance by turning to quality stocks, "as their sound balance sheets and steady cash flows should insulate them from unforeseen downside risk." With that in mind, he sees many of the largest tech and internet stocks meeting that criteria, while exposure to highly cyclical sectors and overleveraged companies should be minimized.

J.P. Morgan global strategists suggested that investors should seek to increase the resilience of their equity portfolios and focus on "high-quality names, strong dividend payers, and regional diversification."

"We also think that adding exposure to alternative asset clasees, such as infrastruture, could provide a more defensive stance to portfolios, while delivering some inflation protection and attractive income."

Finally, keep an eye on scarcity to capitalize on opportunities created by supply shortages seen across energy, materials, food, and labor, they said.

T. Rowe Price's ( TROW ) head of International Equity and CIO, Justin Thomson, sees opportunities in select sectors, including small-cap stocks and high-yield bonds. "Cheaper valuations and a weaker U.S. dollar also could make global ex?U.S. equity markets attractive," he said. And Arif Husain, head of International Fixed Income and CIO at TROW, said positive yield curves could do the same for global ex-U.S. bond markets.

Macro view: On the macro outlook for the rest of 2023, J.P. Morgan still sees a recession is still "more likely as not" as the strategists don't expect central banks to slash rates pre-emptively.

KKR's McVey sees 2023 U.S. GDP growth of 1.8%, higher than the consensus of 1.1%. His consensus for inflation in 2023 is lower than consensus, while his expectations for 2024 inflation are higher in every region.

EPS will fall more than consensus as "profit margins start to contract more meaningfully despite positive topline growth," McVey said. In addition, the U.S. labor shortage will continue. Long-term pricing for U.S. oil producers will move closer to $80 per barrel from the prepandemic range of $50-$60.

In its midyear outlook, T. Rowe Price said, "the balance of economic forces still appears tilted against global capital markets. Sticky inflation, central bank tightening, and financial instability all pose clear risks."

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